How Social Media Celebrities Influence the Crypto Market

How Social Media Celebrities Influence the Crypto Market

What are the implications of Kim Kardashian’s Instagram posts on crypto tokens? Find out!

Three celebrities, including American media personality Kim Kardashian, boxer Floyd Mayweather and former basketball player Paul Pierce, were recently sued by an investor over their promotion of the altcoin EthereumMax (EMAX). What exactly happened?

The lead plaintiff, Ryan Huegerich, an investor in New York who purchased EMAX, filed a class-action lawsuit filed with the Central District Court of California. He alleged that the celebrity promoters colluded with EMAX executives Steve Gentile and Giovanni Perone to make “false or misleading statements to investors about EthereumMax through social advertisements and other promotional activities”. The lawsuit claims that the scheme artificially pumped up the value of the token and “duped potential investors into trusting the financial opportunities.”

Huegerich and other aggrieved investors purchased EMAX tokens between 14 May 2021 and 17 June 2021 and suffered losses as a result of the celebrities’ endorsement of the coin.

How celebrities, from Kim K to Mayweather, pumped up EMAX

In June 2021, Kim Kardashian posted an ad on her Instagram story to her then 220 million followers. Her post touted EMAX as the next big thing, captioning “Are you guys into crypto??? This is not financial advice but sharing what my friends just told me about the Ethereum Max token! A few minutes ago Ethereum Max burned 400 trillion tokens—literally 50% of their admin wallet giving back to the entire EMAX community.” Her post ended with the hashtag #ad written at the bottom of the screen, suggesting that EMAX paid her to promote the coin.

Likewise, Mayweather advertised EMAX ahead of a boxing match with YouTuber Logan Paul, wearing a T-shirt with the EMAX logo printed during a highly-publicized exhibition weigh-in with his opponent. EMAX was also accepted as payment for tickets to the Mayweather-Paul fight. For purchases over US$5,000 using EMAX, audience members would receive Mayweather-autographed boxing gloves.

Former NBA star Paul Pierce said in a Twitter post posted in May 2021 that he made more money with EMAX in one month than with his former employer ESPN in a year. He also encouraged his followers to check out the EMAX website. 

Since its launch in May 2021, ‌consecutive endorsements by celebrities have caused EMAX’s value to rise by 1,300% more than its initial price by early June 2021 to UD$0.00000051. However, it has lost over 99.7% of its price and is now selling for around merely US$0.000000001468. 

The problems with EMAX and lessons for investors

Crypto commentators and investors have been calling EMAX a “ponzi scam” and saying that the celebrities were “shilling” for it by making misleading or false claims about it. Representatives of EMAX, however, denied the accusations, claiming, “The deceptive narrative associated with the recent allegations is riddled with misinformation about the EthereumMax project. We dispute the allegations and look forward to the truth coming out.”

This is a good lesson for potential crypto buyers to not make investment decisions based on claims made by influencers. Well-known cryptocurrencies like Bitcoin are highly risky and volatile in the first place, as they are almost entirely speculative investments. Lesser-known altcoins like EMAX and Dogecoin are even more so. Their current streaks could reverse at any point, posing insurmountable risks for investors. As such, prospective investors should exercise even more caution. 

The growing partnership between young influencers and crypto exchanges

More and more Gen Z and young millennial social media influencers have also partnered up with cryptocurrency exchange companies to post paid ads on different social media platforms. Teenage TikTok stars Charli and Dixie D’Amelio have posted about the cryptocurrency app Gemini on Instagram to their millions of followers. Coinbase sponsored YouTuber Mr. Beast’s video, with the influencer telling his 70 million subscribers that “Coinbase is the best place to buy Bitcoin, Ethereum, Dogecoin, and many other cryptocurrencies.”

These influencers are usually followed by a younger audience, who are typically financially unsophisticated and easily manipulated by star power. The Chair of the Financial Conduct Authority, Charles Randell, has warned that social media influencers can be used to propagate cryptocurrency scams. He said, “There is no shortage of stories of people who have lost savings by being lured into the crypto bubble with delusions of quick riches, sometimes after listening to their favorite influencers, ready to betray their fans’ trust for a fee.”

Young investors should always conduct research before deciding to invest in crypto tokens. In 2017, the U.S. Securities and Exchange Commission (SEC)’s Office of Investor Education and Advocacy warned, “A celebrity endorsement does not mean that an investment is legitimate or that it is appropriate for all investors. It is never a good idea to make an investment decision just because someone famous says a product or service is a good investment.”

The SEC also suggests that investors should always check out the background of any company they consider investing in. For example, one may assume that EMAX is connected to Ethereum because of its name. However, EMAX has zero relation to Ethereum and is not officially supported by the second-largest cryptocurrency. This branding might be an effort to mislead investors into believing the token is part of the Ethereum network. It is wise to do thorough research to ensure your money does not fund vacuous projects or scams. 

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Header image courtesy of Freepik

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