Celebrities, including reality TV star Kim Kardashian West and Tesla Inc. CEO Elon Musk, are touting cryptocurrency products, leading to worries that such endorsements could harm vulnerable investors.
Kardashian West posted an Instagram story of a paid advertisement in June for EthereumMax, a lesser-known digital token, according to the U.K.’s financial watchdog.
The post had substantial reach. According to a study by Morning Consult, a data intelligence company that surveyed 2,200 U.S. adults in September, 1 in 5 respondents had heard about Kardashian West’s ad. “A striking 19 percent of respondents who said they heard about the post invested in Ethereum Max as a result,” with an error margin of 2 percent, Morning Consult said.
Celebrity endorsers of crypto also include superstar NFL quarterback Tom Brady and his wife, businesswoman Gisele Bündchen, who appeared in ads in September for crypto exchange FTX.
“I’m getting into crypto with FTX. You in?” Brady asks in the commercial.
Such boosting of financial products can entice ill-informed investors and potentially hurt those taken by the allure of the endorsement, rather than features of the product, said Lawrence Cunningham, law professor at The George Washington University.
“At scale, that can lead to a systemic misallocation of capital with adverse system wide effects,” Cunningham said in an email.
Social media influencers are routinely paid by scammers, said Charles Randell, chair of the U.K.’s regulatory watchdog, the Financial Conduct Authority, and some promote coins that turn out to not exist at all. Some celebrities don’t disclose that they’re getting paid.
That disclosure has been paramount for U.S. regulators. Professional boxer Floyd Mayweather Jr. and music producer DJ Khaled were charged by the Securities and Exchange Commission in November 2018 for failing to disclose that they had been paid for promoting investments in crypto.
There is excitement for crypto, but a lot of it is speculative, and celebrities are amplifying that, Cunningham said.