Celebs looking to make quick bucks from advertising cryptocurrencies now have to deal with regulation. The Spanish consumer watchdog CNMV steps in to introduce a semblance of order in an area that has escaped attention.
Spain wants to regulate the growing business of social media influencers using their massive platforms to push cryptocurrencies. The CNMV is now tasked with approval advert campaigns, in addition to its traditional role of overseeing the stock market.
The main goal of the new regulatory framework is for potential investors in cryptos in Spain to be made aware of the significant risks.
With the new rules, advertisers or companies promoting cryptos are required to notify the CNMV at least ten days in advance. They will provide details about the content of the advert. This rule applies to advert campaigns that target more than 100,000 people.
Also, the promoters will have to disclose the risks investors face when they put their money in the crypto.
This rule applies when the crypto company is marketing by itself or through third parties.
Influencers with more than 100,000 followers are required to make this declaration before any campaign, including providing information on the risks associated with the crypto.
Crypto currencies are very volatile, and investors can quickly lose significant amounts of money. However, many influencers have made lots of cash by advertising cryptos to their followers.
The new rules will go into effect in mid-February in Spain and strengthen CNMV’s oversight on crypto investments.
Last November, the Spanish regulator had scolded a soccer star, Andres Iniesta, for promoting crypto on behalf of Binance, a crypto exchange platform. Iniesta used his large Twitter and Instagram platforms to post about learning crypto.
His message read: “I’m learning how to get started with crypto with @binance #BinanceForAll.” It was accompanied by a picture of the star athlete sitting before a laptop, apparently transacting on Binance’s online platform.
The post got 270,000 likes on Instagram alone.
Although the post didn’t indicate whether Iniesta got paid, the market regulator responded through its Twitter account that the soccer star should be thoroughly informed about cryptos before trading for himself and encouraging others to join him. The commission pointed out that cryptos are unregulated.
Other celebrities have landed in trouble for promoting cryptos that end up being a ‘pump and dump’ scheme by the creators. For example, Kim Kardashian and Floyd Mayweather have been joined to a lawsuit brought by a group of investors who lost money through a crypto named EtheruemMax that both celebrities promoted with their social media accounts.
Some bitcoin creators team up with celebrities to promote their new cryptos, making the price go up as people rush to buy them (pumping). The creators then cash out by selling all of their own cryptos (dumping). This massive sale triggers a collapse in the crypto price, and many investors are left with worthless assets.
This practice could be replicated in the traditional stock market but is illegal. However, most countries do not have such a framework in place for cryptos.
The UK treasury is also proposing to increase regulation on crypto advertising. It may end up very similar to what Spain has announced by making advertisers get approval from a company authorized by the Financial Conduct Authority.