Why a lack of regulation in cryptocurrency and influencers could be a disastrous combination

It’s a pub quiz question for the ages. What do action star Steven Seagal and former Premier League football manager Harry Redknapp have in common?

No, they aren’t starring in the next mismatched buddy cop action comedy.

They are in fact “influencers” who have given their backing to cryptocurrency in recent years.

But Steve Seagal and Harry Redknapp aren’t exactly names that spring to mind when considering who to speak to for investment advice.

Which raises questions about the roles of influencer marketing in FinTech, particularly when it comes to the volatility of crypto currency.

But what is influencer marketing, why is it controversial and why could it raise particular concern when it comes to cryptocurrency?

What is influencer marketing

Influencer marketing is the modern equivalent of a celebrity endorsement – creating a word of mouth buzz that is conducted through social media channels. The theory is that you are able to engage with your target audience through “mutual connections” (influencers) that your audience trusts, respects and listens to.

And you don’t actually have to be a celebrity in the traditional sense to achieve influencer status. Anyone with a relatively high (and actively engaged) social media following can be perceived as an influencer.

In fact, an influencer doesn’t necessarily have to be a human as bizarrely even animals have achieved influencer status!

Does influencer marketing actually work?

In short, yes and for any type of product and service. Lakeland saw sales of its multi-section frying pan soar by 1000% after diving champion Tom Daley posted an image of him using it.

Likewise, Fyre Festival sold out 5,000 tickets at prices ranging between $500 and $12,000 solely through an influencer marketing campaign. However, the shambolic circumstances and legal falllout of the Fyre Festival have meant that influencer marketing has recently come under intense scrutiny on both sides of the Atlantic.

Fyre festival and influencer marketing controversy

Like influencer marketing, the Fyre Festival has become a cultural phenomenon – but for all the wrong reasons. That’s because it never took place and the co-founder Billy McFarland is now serving a jail sentence for fraud.

So what happened? Essentially McFarland paid a group of supermodels, with huge social media followings, to spend several days partying with him and his business partner, rapper Ja Rule, in the Bahamas.

The supermodels were told that the purpose was to shoot an advert for a future luxury festival, that would take place in a similarly exotic location.

The supermodels were encouraged to post and tag each other during the shoot (creating an initial buzz) and then later endorse the festival. It’s reported that this resulted in the event selling out as McFarland talked up returns to potential investors. But the festival was fast unraveling.

Locations were changed, caterers dropped out and festival goers arrived to find their “luxury accommodation” consisted of hurricane survival tents and little else.

As word of the ensuing chaos spread, bands dropped out and the festival was cancelled at the 11th hour.

Unsurprisingly McFarland felt the full legal consequences of grossly misrepresenting what he was selling. But more recently attention has swung back to the role influencers have played and how upfront they were about being paid to promote the event.

Legal side of influencer marketing

Legally, influencers should be transparent about whether they’ve been paid to endorse a product or service (for example by including the hashtag #ad in a prominent position), but few do.

However, authorities are beginning to crack down on this. Recently the Competition and Markets Authority (CMA) in the U.K.. censured a host of celebrities including Ellie Goulding, Rita Ora and Alexa Chung, for not making it clear they had received an incentive to mention certain brands on social media.

Influencer marketing in FinTech

While the CMA has been clamping down on the transparency of influencers, the FCA has been investigating firms involved in the sale of cryptocurrency– despite the fact that the transfer, purchase and sale of cryptocurrencies are not regulated in the UK.

And this lack of regulation means there is nothing to stop influencers from urging consumers to “get involved” with cryptocurrency.

Which brings us back to the mismatched pair of Harry Redknapp and Steven Seagal.

Back in 2017 Harry Redknapp sent a tweet (his first in months), urging his followers to “get involved” with Electroneum, a cryptocurrency, that he was “proper excited” about.

Electroneum claimed that Mr Redknapp had not been paid for his backing which raised a number of eyebrows for a number of reasons. According to the Guardian, after being acquitted for tax evasion in 2012, “Redknapp said he was a terrible businessman and ‘a bit of a gambler’ whose lack of investment nous had nearly ‘wiped out’ his son Jamie. When it came to technology, he said he could not work a computer, did not know what an email was and had never sent a text message”

Arguably then, not someone you’d immediately think of when seeking investment advice, particularly in the FinTech arena.

More recently, cryptocurrency Bitcoiin2gen (B2G) announced that actor Steven Seagal was representing the FinTech firm as a worldwide brand ambassador.

However, regulators in New Jersey and Tennessee issued warnings regulators in New Jersey and Tennessee issued warningsthat investors should steer clear of the cryptocurrency.

New Jersey’s Bureau for Securities issued a cease-and-desist order describing “Bitcoiin” as an unregistered security, and highlighted the unclear nature of Seagal’s relationship with the project.

Additionally, Tennessee’s Department of Commerce and Insurance issued an alert stating that “Bitcoiin” was not registered as a security issuer with the state, and re-emphasized the fact that investors should “be cautious when investing in cryptocurrencies.”

Seagal tweeted about the project on various occasions using the hashtag #ad but left the project soon after its ICO.

What next?

The future of cryptocurrency is unclear but there is no denying that it is a highly volatile asset and one that should be only available to sophisticated investors.

There have already been tales of investors losing everything they own investors losing everything they own by going “all in” with the asset.

Social media influencers hold great sway over their followers and arguably perpetuate the get rich quick dream. So with the volatility of cryptocurrency, and influencer marketing showing no signs of abating it truly could be a disastrous combination without proper oversight.

If you need help with any aspect of your social media marketing strategy, contact MD Consulting.

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