“Are you guys interested in cryptocurrencies?”. We are in June of last year. On one of the most followed Instagram profiles in the world, that of Kim Kardashian West, a particular story appears. Inside, with white text on a blue background, the former reality star invites its 250 million followers to discover the world of Ethereum Max, a digital token that promises big gains in no time. Charles Rendell, number one of the Financial Conduct Authority British, defines it as “the financial promotion with the largest audience in history”.
The same token is being promoted by two other US stars. Ethereum Max is among the sponsors of the match between boxer Floyd Mayweather and YouTuber Logan Paul. And it’s also the subject of a tweet from former Boston Celtics NBA champion Paul Pierce.
A few months later, Kim Kardashian West, Floyd Mayweather and Paul Pierce are sued for making “false or misleading statements to investors about EthereumMax through social media advertising and other promotional activities.”
According to the class action, launched by New Yorker Ryan Huegerich, Ethereum Max is a “speculative digital token created by a mysterious group of cryptocurrency developers”. The strategy, according to the indictment, would have been to artificially raise the price through the posts on social networks of a group of celebrities. This would then have allowed the creators of the cryptocurrency to sell the tokens at a higher cost to increase their earnings. A reconstruction denied by EthereumMax which, through a spokesperson, disputed the allegations.
Celebrities and cryptocurrencies: the potential risks of a relationship just starting
Kim Kardashian isn’t the first celebrity to speak out for the cryptocurrency world. Actor Matt Damon is the face of Crypto.com, TikTok star Charlie D’Amelio is the face of Gemini, while American football champion Tom Brady is of FTX. In itself, what a growing market like that crypto you use advertising and big names to tell the public it would not be news. It becomes so because cryptocurrencies are, at the moment, a particular context, for at least two reasons.
First, because it is a market where attention determines the value of the asset. According to research by Yale and the University of Rochester, the prices of cryptocurrencies are established on the basis of two main factors: possible spikes in exchanges and the attention of investors. We are therefore talking about a market in which the value is fixed by conversations and which, therefore, can be manipulated by addressing those who have a large audience at their disposal.
Let’s take the example of Ethereum Max. After Paul Pierce’s tweet on May 26, the token’s trading volumes have increased fivefold. According to the Financial Times, in those days, between May 24 and May 29, the price of EthereumMax went up by more than 1,400%. On June 12, some time later, the price dropped 85%. Then, on June 14, Kim Kardashian’s Instagram story arrived, which caused the value to rise again until a new collapse. The other issue to be addressed is that cryptocurrency is a market yet to be regulated, in which new initiatives flourish every day. And it is not easy, even for those who decide to advertise them, to understand their validity and the possible dangers for consumers. According to Eshwar Venugopal, a finance professor at the University of Central Florida in Quartz, “cryptocurrencies are certainly riskier than anything in the stock market.” And they are, continues Venugopal, because transparency and protection for those who invest are often lacking. According to Consob, the greatest risk is precisely the possibility of economic losses, caused above all by “fraudulent conduct, bankruptcy or cessation of activity of the online exchange platforms where personal digital wallets are kept”.