Editor’s Note: Emily Parker is the managing director of global content at CoinDesk, a media, events, index and data company, and a former policy advisor at the US State Department and writer/editor at The Wall Street Journal. She is the author of “Now I Know Who My Comrades Are: Voices From the Internet Underground.” The opinions in this comment are her own. Read more opinion on CNN.
On Monday, the Securities and Exchange Commission announced that it was civilly charging Kim Kardashian for promoting a crypto asset, EthereumMax, on Instagram without disclosing that she was paid to do so. Kardashian has agreed to pay a fine of nearly $1.3 million and not market any cryptocurrencies for three years, the SEC said.
This case reflects a much larger problem in the crypto industry: Celebrities are using their influence to promote cryptocurrencies, a notoriously complex and risky asset class, which can lead people to invest in coins or projects they may not understand.
While the SEC went after Kardashian for not disclosing payment for promotion, it also made clear that it considers EthereumMax to be a security. Securities come with a strict set of rules, designed to protect investors. This should signal to celebrities and other crypto promoters to think twice before giving out what appears to be financial advice to a wide variety of consumers.
Kardashian isn’t the first celebrity to run into trouble with the SEC: Floyd Mayweather Jr., Steven Seagal and DJ Khaled also paid fines for their crypto campaigns.
But other crypto-related celebrity endorsements, while not illegal, remain controversial. Take Elon Musk’s tweets supports dogecoin, a Shiba Inu themed cryptocurrency. Then there was Matt Damon’s promotion of crypto exchange platform Crypto.com. Or Larry David’s Super Bowl ad for crypto exchange FTX suggesting you were hopelessly behind the curve if you didn’t believe in crypto. There have been so many celebrities promoting non-fungible tokens, essentially unique digital assets, that it’s hard to keep track.
This is not normal. It is much rarer to see high-profile celebrities giving financial advice on more traditional assets such as stocks. “If a celebrity promoted a random stock, would you buy it?” Neeraj Agrawal, director of communications at the Coin Center cryptocurrency policy think tank, told me. “Just because it’s crypto, you shouldn’t throw all due diligence out the window.”
Cryptocurrency is a fast-moving industry, and regulators have yet to catch up. New coins and projects keep popping up, sometimes without adequate warnings about the risks of investing. One could argue that cryptocurrencies in general are largely sentiment-driven assets, in that their price is determined less by fundamentals and more by collective belief in their value. This can make social media a potentially powerful price driver. Several media reports have attributed movements in bitcoin and dogecoin’s price to specific Musk tweets, for example.
This sentiment-driven mania was particularly notable last year during the crypto frenzy of the bull market, where much investment seemed to be driven more by fear of missing out than sober analysis. Cryptolender Celsius and stablecoin TerraUSD (UST) are just two examples of ultimately failed projects that seduced investors with the lure of high returns. Celsius filed for bankruptcy protection, and UST, which was supposed to trade at $1, saw the price drop far less than that. Meanwhile, the once red-hot NFT market has suffered a price drop this year.
In such a rapidly changing and confusing market, how do you separate the winners from the losers? It’s easy to imagine how a confident tweet from a celebrity could have a significant impact on a new investor.
The celebrity endorsement problem isn’t going to be solved by the SEC punishing any influencer who tweets irresponsibly about crypto. “They have to be selective in that their resources are limited,” Agrawal said. “It is impossible to go after everyone. Going after the biggest name, it wouldn’t surprise me if this is a warning shot that is largely heard by the celebrity community.”
In that sense, Kardashian did the cryptocurrency industry a favor. Such a high-profile example might make other celebrities think twice before giving a token on social media.
“I think people will be more cautious now,” former SEC Division Chief Lisa Braganca told me. “This is how the SEC speaks to the world. When they come out and make their informational videos, it has a lot less impact. It makes a lot less noise than when they take out an enforcement action.”
A better solution to this problem would be for investors to do their own research before pouring their savings into crypto, while demanding that crypto entrepreneurs be more transparent about the technology and economics behind their projects. For now, though, we can only hope that this SEC action will encourage celebrities to show more restraint in offering financial advice to their followers. If that happens, the crypto industry will have Kardashian to thank.
