Influencer manipulation of Crypto and its legalities
As far as financial history goes back, manipulation has existed with tradable assets. Crypto is not an exception. However with nascent to non-existent regulations and responsibilities, money-hungry influencers aim at the youth’s mentality through deceptive-marketing to lure them into financial abuse with crypto manipulation.
The Crypto Obsession
The “coolness” factor of crypto is immaculate, subsequently, if there is one thing teens are more fascinated by than how to make babies, it is cryptocurrency. These are the very characteristics of immature shenanigans and stunts, that manipulators capitalise the most out of. This article will aim to explain the various techniques abusers use to defraud the innocent (at least in this space) youth, what factors make the youth succumb to manipulation, and how all of this is legal. By the end of this read, YOU will be able to identify, avoid and advocate against crypto manipulating influencers. Firstly, one needs to understand why the youth is attracted to crypto at all. Cryptocurrencies represent transparency, autonomy, freedom, and uniqueness. Cryptocurrencies represent everything the youth values. In essence, the youth is sick and tired of the traditions, and customs the society (apparently) imposes on them through different channels of living. This sentiment of being confined in the fundamentals of an “ancient, unsuited and suffocating” statue of operations, was also prevalent in the inventor(s) of cryptocurrencies. One may rightly proclaim that the tenet of crypto and the youth is similar to an extent of horror. Manipulators primarily use this specific sentiment to abuse. Since, the crux of manipulation and the youth’s admiration has been established. One needs to analyse the various forms of manipulative influencer marketing.
“My mom doesn’t tell me how to live my life, Meghan Thee Stallion does”.
This line from the hugely popular coming-of-age Netflix show “Never Have I Ever”, perfectly summarises the relationship between the youth and the influencers. Subtly put, the youth would do anything in their power to either copy their favourite influencers or promote them. What the youth does not understand, however, is the fact that these influencers are extremely acquisitive creatures. Promotion of primitive or novel altcoins (cryptocurrencies other than bitcoin), with immature and nascent blockchains, through various forms of marketing is ever more popular.
Pump and Dump
The most common mechanism influencers use to manipulate crypto along with their fans is through the practice of Pump and Dump. Before diving into the various cases of crypto manipulation, their ramifications, and what the authorities are doing about this entire financial frenzy, one needs to understand Pump and Dump.
Pump and Dump is the crypto version of a Ponzi scheme. In which influencers use their domain of media to promote a certain altcoin, one in which they have invested themselves. This can be in the form of Tweets, Instagram posts, YouTube videos etc. This promotion acts as the impetus for hyper motivated almost blinded teenagers, to participate in the promoted altcoin. This “pumps'' assets into that altcoin. Most abusing influencers use primitive or entirely new altcoins, as the blockchains of the same do not have adequate data, this restricts information about that altcoin, which furthers the flourishing of the frenzy. After a certain amount of time, the hyper motivated kids raid the altcoins, which skyrockets its value.
At this point, when the value is at its peak, the influencers start selling or “dumping” their stakes. Since their stakes were the oldest before the boom, they have an extremely high value, the sale of which results in the downfall of the entire altcoin. Due to this, the thousands of kids who helped in the pump of that coin, experience exponential losses.
FaZe Financial Frenzy; Save The Kids ($KIDS)
Since the mere theory of Pump and Dump has been established, it is necessary to see its application. The most notable Pump and Dump scheme in the domain of cryptocurrency were Save The Kids ($KIDS) Scam. Earlier this year, one of the biggest esports organizations and media houses, FaZe clan terminated a member, along with the suspension of three other members. They did so because the punished individuals allegedly promoted, participated and benefitted from a Pump and Dump scheme(1). This specific scandal also involved massive internet personalities such as Sommer Ray, Logan Paul and Ricegum (2). FaZe - Kay, Jarvis, Nikan and Teeqo promoted a new crypto known as “Save The Kids or $KIDS”, mostly through Tweets, but also on other platforms. The marketing of $KIDS was spearheaded by the hype surrounding the narrative of “the kids’ charity coin '' as a certain amount of proceeds would be given to charities that help children(3). The participating influencers painted a picture of the unification of the industry for the benefit of kids and fans (mostly kids). They blatantly claimed that the coin is the next big thing and everyone should be involved as not only profit, but humanitarian advancements will also be yielded from this coin. Unsurprisingly, thousands of their hyped-up fans engaged in the coin, which resulted in soaring values. However, the influencers who initially fuelled the hype along with the subsequent value sold their holdings, as it would be obvious for any coherent business mind to sell its stake for an investment which soared due to marketed hype rather than attest worth, as soon as the hype reaches its maximum plausible point, the value does so too. It is common knowledge that hype never lasts. The biggest issue with this was, due to their stake being the oldest and most considerable, even before the hype, their sale resulted in hellish scenarios, as the value of $KIDS plummeted(4). This affected the majority of the participants, the non-influencers, drastically, as they lost great amounts of money, due to the plummeting of the coin’s value. Ironically a crypto whose core was based on helping kids ended up destroying the livelihoods of thousands of kids along with their families.
The sad reality of inadequate regulation
Though FaZe rightly punished the perpetrators, they were not prosecuted for any criminal lawsuit. Furthermore, other influencers who were not reporting to any organization, faced no consequences whatsoever. If similar actions were taken by individuals in fiat money centralised domains such as a company’s stock, they would have faced serious jail time. There is no considerable nor cognizable prohibition for such actions in the crypto space under any federal law, state law or financial regulations. If a regulating body existed, it would not have allowed the offering of the coins under the following mechanism in the first place. It would not have allowed holders of such massive stakes to sell their holdings, in the observed manner. Above all, it would have prosecuted the abusers under the law. However, no such body nor law exists. The responsibility of safe handling crypto transactions is in the hands of the people themselves. Sadly, the youth needs someone or rather something to protect them, otherwise, scandals such as these would be recurring.
Crypto, Clout, Crime
One must note, the aforementioned influencers are not the only famous personalities who are rather phoney when guiding their fans on crypto, neither Pump and Dump is the only practice they execute. Thousands of influencers are promoting any and all kinds of altcoins to their hundreds of millions of fans. These altcoins range from titcoin, to memecoin(s), and everything in between. Altcoins which are new and have little to no value are collectively categorised and referred to as “sh*tcoins”. Kim Kardashian, Mia Khalifa, Keemstar, Jake Paul have all advertised sh*tcoins which experience a phallic value change. These include, but not limited to – SafeMoon and Ethereum Max (different from Ethereum). One of the funniest advertisements in social media history was done by the D’Amelio family Instagram page, which showed Charli D’Amelio promoting the cryptocurrency application - Gemini, however at that time she was herself not old enough to be on Gemini, under the application’s policy (5).
One must be aware of a manipulator practice called “bounty campaigns”, in which the creators of sh*tcoins pay “bounties” (money) to influencers or users with a big following to promote their coins. This practice is growing at threatening rates. According to social media posts monitoring bodies, 18% of all crypto-related posts on Twitter, Reddit and the online forum Bitcointalk.org are bounty campaigns(6).
Hawa-Hawai Hype, Ruined My Life
According to the Federal Trade Commission, a sum of $80 million has been lost in crypto-related scams since October 2020 (7). The same study showed that 90% of the people that got scammed, were below the age of 30. A report by the UK’s Financial Conduct Authority also revealed that juvenile audiences were participating in high-risk investments like crypto, which were mostly caused by emotions and feelings(8). We are experiencing a global laissez-faire capitalism application in the face of crypto manipulation by influencers. Children are draining their parents’ life savings, their college tuition funds, and lives are being ruined, but the law is doing nothing about it. Social media sites like TikTok and Facebook which have active users from all around the world did introduce measures to curb bounty campaigns but all of those measures have since then been relaxed(9). Financial literacy and the right guidance is the need of the hour. What we also need is regulation, however, the very foundation of cryptocurrency does not allow that, anonymous ledger and financial freedom are at the heart of crypto operations. There is little the Security & Exchange Commission (SEC) in America, or any other regulating body in the world can do. However, what they can do, and should do is, establish certain laws which prohibit influencer orchestrated Pumps and Dumps. They should also introduce certain measures which outlaw bounty campaign manipulations. But at the end of the day, it is the youth’s responsibility to :
Study what they are investing in.
To identify the right personnel to take financial advice.
To identify money-hungry influencers and avoid them at all costs.
To invest an amount in crypto, that they can afford to lose.
~ Lorik Yadav