Is There a Crypto Market's Influencer Problem?

The growing influence of celebrities and prominent figures on cryptocurrency markets calls for increased scrutiny and regulation to ensure the industry's health and growth.

by Adam Kreitzman, intern

In the past week, two individuals managed to provoke massive daily fluctuations in the cryptocurrency market through their actions: UpOnly podcast host Cobie as well as billionaire entrepreneur Elon Musk.

Market Manipulation by Influencers: A Cause for Concern

Cobie’s Tweet

Cobie was able to cause a major downturn in the price of both Bitcoin and BNB by tweeting out a hash corresponding to a transaction with a message in it alluding to an Interpol red notice being issued for Binance CEO Changpeng Zhao (commonly referred to as “CZ”).

This turned out to be untrue, but even a cryptic tweet of a transaction hash was enough to cause Bitcoin’s price to drop from $28,150 to $27,450 and BNB’s to drop from $311 to $300. Upon learning that it was an unconfirmed rumor, the market quickly recovered, but many traders were impacted by the sudden move.

Musk’s Move

Elon Musk’s affinity for Dogecoin has been fairly well documented between the willingness of Tesla to accept it as payment for a brief period of time as well as his frequent posting of Dogecoin-related memes.

Musk took it to another level this past week, as he used the company he just bought for $44 billion to take the Dogecoin meme-ing one step further. He changed the Twitter logo to the Dogecoin ONE, and as a result, the price of the memecoin soared 30% almost immediately.

Questionable Influencer Behavior is Nothing New

While recent market manipulation incidents may not indicate direct personal gain for those involved, the crypto landscape has unfortunately witnessed numerous cases of influencers exploiting their followers. These actions have significantly damaged the credibility of the industry.

Between famous athletes and artists who launched NFT projects filled with tons of empty promises that left their fans holding the bags, or streamers accepting payments or tokens to shill projects to their viewers who got caught up in the mania of the last bull market, it is troubling that many people’s first experience with crypto was losing their money at the hands of popular influencers.

Independent Investigations

Investigations by notorious blockchain sleuth ZachXBT have uncovered many popular crypto influencers dumping tokens less than 24 hours after promoting them to their audience. So far, none of them have faced repercussions for their actions, in spite of clear, on-chain evidence.

As many of these influencers serve as the entry point into crypto for mainstream audiences through platforms like YouTube, it is disheartening to witness the betrayal of their audience's trust.

Addressing the Issue: Regulatory Measures and Community Responsibility

To give some credit to the SEC, they have charged celebrities such Kim Kardashian and Jake Paul for their roles in promoting crypto projects, which is a step in the right direction for making sure there is accountability for actions in the crypto space.

The crypto industry is in need of common sense regulations. If the SEC is genuinely committed to protecting investors, shouldn’t it implement regulations that explicitly define illegal market manipulation within the industry? Shouldn’t it repudiate actions such as pumping and dumping currencies.

Although the SEC's resources are stretched thin, it's unreasonable to expect them to prosecute every individual engaged in unethical behavior within crypto markets. Instead, the focus should be on preventing these schemes from happening in the first place, rather than solely fining those who can easily afford to pay.

Active Engagement

For now, it is crucial for the crypto community to take it upon themselves to protect new users from these bad actors. A negative experience upon entering the crypto world could lead newcomers to leave and never come back, stifling the growth and adoption. 

To foster a healthy environment, it is important for industry leaders to educate newcomers on how to navigate the space safely and avoid falling prey to scams and malicious influencers. It is also the responsibility of the community to prop up the right people.

There must be a better user experience for those entering the crypto space. The industry must strive to make information more accessible and user-friendly, ensuring that new users are equipped with the knowledge to make informed decisions. 

Embracing Blockchain Transparency to Foster Fairness and Growth

Blockchain technology's inherent transparency, facilitated by its public ledger, makes proving unethical market behavior remarkably straightforward. It is not something that is just confined to crypto, as market manipulation and illegal activities have happened in Traditional Finance ever since its inception.

However, crypto’s novelty and relatively small market makes it ripe for this kind of behavior and the fact that there is no shortage of investing opportunities with extremely low liquidity creates the ideal environment for price manipulation. 

This challenge also underscores one of blockchain's key strengths: its ability to leverage transparency to ensure fairness in the long run. A fundamental principle of DeFi is the democratization of market opportunities, but the current influence exerted by prominent individuals hampers the realization of this vision.