Internet & Social Media Law Blog
Social Media has gone from frontier to “settled land of influencers” when it comes to brand promotion. In 2020, social media ad revenues reached $41.5 billion, making up nearly 30 percent of all internet and ad revenue. The latest influencer trend has been marketing “altcoins,” which are cryptocurrencies other than Bitcoin. From YouTuber-turned-boxer Jake Paul promoting the digital coin Safemoon to the social-media veteran Kim Kardashian marketing “Ethereum Max,” cryptocurrency promotion permeates social media. On the flip side, there’s also been a boom in consumers seeking financial advice from social media platforms like Reddit’s r/WallStreetBets. However, as with all advertising, cryptocurrency promotion has raised many concerns. Among them? Are the cryptocurrencies marketed by influencers are simply pump-and-dump scams? One approach influencers try to limit liability is by including the disclaimer “this is not financial advice” in their posts and videos, but is including or hashtagging a disclaimer enough to limit liability?
Investing in longstanding cryptocurrencies like Bitcoin is risky, simply because of how volatile its value can be. It would seem that the cryptocurrencies that influencers advertise—altcoins—are even riskier. Often based on some sort of online joke, altcoins are sometimes referred to as “meme-coins,” but more simply defined, they are any cryptocurrency that is not bitcoin. Take Dogecoin, for example, which started out in 2013 as a joke between two engineers combining two of 2013’s most popular trends: bitcoin and the “doge” meme (which is a picture of a Shibu Inu dog accompanied with multicolored text in the foreground, representing a kind of internal monologue). Since Dogecoin’s popularity, there have been many Dogecoin copycats that have flooded the market such as: Shibu Inu, Kishu Inu and UnderDog.
But the real danger comes from influencers marketing altcoin pump-and-dump schemes. Pump-and-dump schemes typically involve influencers who receive financial incentives for telling people to buy a certain crypto to raise its value. As soon as the value goes up, the scammers and influencers sell their crypto and pocket the profits, while everyone else sees their investments lose value. And although pump-and-dump schemes are illegal in the stock market, there’s very little regulation of these schemes in the cryptocurrency space.
To limit their liability, influencers almost always disclaim “this is not financial advice,” or as one influencer tweeted “not financial advice lol.” Is that enough to limit liability, though? Traditional financial advisors are regulated and must be licensed. It’s clear that most influencers lack the proper credentials.
Although there have not been crypto pump-and-dump lawsuits yet, using disclaimers to limit liability isn’t a novel move. For example, the Federal Trade Commission (FTC) released Endorsement Guides that place the burden on influencers to make it “simple and clear” when they have a relationship with a brand. Appropriate disclosures include hashtagging “ad” or “paid promotion” in captions for posts endorsing goods or specific grands. The FTC’s crackdown on social media advertising came from a response of an FTC statement accusing a company of selling over 58,000 fake Twitter followers to people to artificially inflate their influence.
Ultimately, as long as the regulation of the cryptocurrency space remains a gray area, it is up to the consumer to adequately inform themselves concerning any digital coin investments, and to be careful of any financial predatory behaviors.
So, can influencers hashtag liability away? For now, maybe, but that doesn’t mean they should.
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