The head of the UK’s financial watchdog singled out an Instagram ad posted by Kim Kardashian, which promoted Ethereum Max, in a speech warning of the risks of “speculative” cryptocurrency tokens.
Charles Randell, chairman of the UK’s Financial Conduct Authority, said in a speech Monday that Kardashian asked him for more than 250 million followers on Instagram to “speculate on crypto tokens by” joining the Ethereum Max community “.”
He added that the post “may have been the biggest financial promotion in history.”
CNBC has contacted both Kim Kardashian through one of its companies and Ethereum Max for comment, but had not received a response at the time of writing.
Randell admitted that Kardashian had reported that the post was an advertisement, according to Instagram’s rules.
“But it didn’t have to reveal that Ethereum Max – not to be confused with Ethereum – was a speculative digital token created a month before by unknown developers – one of the hundreds of tokens filling crypto exchanges,” said Randell told the Cambridge International Symposium on Economic Crime.
Randell said that while he couldn’t tell if Ethereum Max was specifically a scam, he pointed out that “social media influencers are regularly paid by scammers to help them pump and dump new tokens on their backs. pure speculation “.
He added that some influencers had promoted tokens that turned out not to even exist.
Randell pointed out that there are no real assets or cash flows underlying the value of cryptocurrencies, even in the case of more established tokens like bitcoin.
He explained that these tokens have only been around for “a few years”, so investors haven’t seen how they behave throughout a full market cycle.
Additionally, Randell pointed out that cryptocurrency tokens are not regulated by the FCA, nor are they covered by the UK’s Financial Services Compensation Scheme, which offers refunds for losses on certain investments or ‘other financial products.
“If you buy them you should be prepared to lose all your money,” Randell said.
Despite these risks, Randell said the cryptocurrency hype “generates a powerful fear of missing out on some consumers.”
“Stories of people who lost savings by being lured into the crypto-bubble with illusions of quick wealth, sometimes after listening to their favorite influencers, are willing to betray the trust of their fans for a fee,” he said. declared.
He cited an FCA study, published in June, which estimated that 2.3 million Britons are currently investing in cryptocurrency, of which 14% have used credit to purchase these tokens.
Randell suggested that the FCA believed social media platforms like Instagram, Facebook, Twitter and TikTok should be required to comply with legislation that prevents companies not authorized by the regulator from promoting advertisements for financial products.
The British Treasury and the Bank of England are currently studying the creation of an official digital token, backed by the value of real currency, known as “stablecoin”.
El Salvador on Tuesday became the first country in the world to make bitcoin legal tender, with President Nayib Bukele revealing that the country had bought nearly $ 21 million value of the cryptocurrency in the run-up to the entry into force of the new law.