By Markus David
Director of Professional Services
Cryptocurrencies are popular. So are celebrities. However, put celebrities together with cryptocurrencies and trouble may brew.
This is demonstrated perfectly in the latest Kim Kardashian scandal. This time, it isn’t about who she is seeing but what she is promoting. The world’s most popular reality show star is facing a lawsuit, along with boxing legend Floyd Mayweather, on allegations that they may have been inflating the value of a new crypto coin to benefit financially.
Social Media, Celebrities, and Cryptocurrency–A Suspect Combination
The class-action lawsuit was filed in January 2022 in the U.S. District Court for the Central District of California, according to CNBC. The suit alleges that EthereumMax and celebrity promoters, including Kim Kardashian and Floyd Mayweather, of making “false and misleading statements” on social media and intend to inflate the value of the cryptocurrency.
The problem began when Kim posted on Instagram that asked, “Are you guys into crypto???? This is not financial advice but sharing what my friends just told me about EthereumMax token.”
Apparently, Kardashian was trying to issue a disclaimer and protect herself by saying her post was “not intended as financial advice,” but presumably, prosecutors in the case do not consider this as providing her protection if she went on to make false or misleading statements. In addition, it is estimated that Kardashian was compensated by EthereumMax to the tune of $500,000 to $1 million for her Instagram post.
Mayweather endorsed EthereumMax with YouTuber Logan Paul and accepted the currency as payment for this boxing match. He was unceremoniously booed off the stage when he promoted this coin at a bitcoin conference.
The Agony and Ecstasy of EthereumMax
On these ringing social media celebrity endorsements, the value of EthereumMax, crypto that had hardly attracted any publicity until then, rose to new heights before experiencing a dramatic selloff and by June 2021, it had lost 97% of its value.
This pattern is similar to a “pump and dump” scheme, which benefits those who tout the assets but hurts those who buy on their advice as the promoters sell off their stakes. Worse yet, the similarity of the name EthereumMax to the second-highest performing cryptocurrency, Ethereum, also may have misled investors.
Five Lessons from the Kardashian, Mayweather EthereumMax Debacle
The one bright side to this scandal is that there is something we can learn from it.
1. Celebrities Are (Usually) Not Investment Experts
Celebrity endorsements are highly prized by companies. However, they just don’t work for investment advice. That is because most celebrities are not brokers. There are celebrity investors, such as Mark Cuban from Shark Tank, who issue sound advice about cryptocurrency trading. Celebrities who are not famous for investing do not necessarily offer reliable advice on what assets to buy or sell.
If investing is not how celebrities made their money, then chances are they are unlikely to know more than a reliable broker about how to trade. Also, beware that many celebrity endorsements of cryptocurrency on social media are fake and run by crypto frauds.
2. Understand the Dynamics of “Pump and Dump” Schemes
Pump and dump schemes involve deceitfully trying to raise the value of an asset to provide a selling opportunity for the person pushing it. The prevalence of pump and dump schemes is the reason financial experts and anyone else giving trading advice must disclose their own holdings.
For instance, if someone is encouraging me to buy bitcoin, they should tell me that they hold it. This is particularly true of relatively obscure assets, such as a new type of crypto coin. These newer coins are volatile and can rise or fall in value rapidly based on high-profile endorsements.
When they are used for a pump and dump scheme, the sole purpose of developing the coin is just to start hype that raises the price, sell it high, and watch it drop while those who have bought it more recently lose everything.
3. Most ICOs Are Fraudulent
Pump and dump and other crypto schemes are so common because they are simple to create. You don’t need to be a financial or tech whiz to create a new crypto coin. Many coins are made up as a joke that others take seriously.
People who are looking for the next hot coin should take into account that, according to Investopedia, 80% of ICOs or initial coin offerings are fake. Do not invest in a new crypto coin that is not on a registered crypto exchange or platform and research who is behind the new asset before investing any money.
4. Don’t Trade Based on Paid Promotions
If someone is plugging something on social media, consider that they may be paid for their endorsement. This is true of products and especially so of trading schemes. This may seem to be ethically questionable, but it is the way social media marketing works. That doesn’t mean that the product is not worthwhile, but for trading, seek recommendations from licensed brokers and not paid promoters.
5. You Need Professionals to Track Down Crypto Transactions
You may go ahead and decide to take the plunge and trade a coin you see advertised on social media. Keep in mind that, since the blockchain is not regulated and transactions are pseudo-anonymous, they can be complicated to track down and recover afterward. Crypto is volatile and crypto transactions can be elusive.
If you have lost money to a crypto scheme, talk to our team of experts who will guide you on the process of tracking down your funds.
If you have lost money to a cryptocurrency scheme, seek fund recovery assistance right away. Consult with MyChargeBack experts and get started with your fund recovery claim. We have extensive working knowledge and relationship with regulators as well as the dynamics of crypto recovery and can improve our prospects of getting your money back.