Last year Kim Kardashian paid more than $1 million to settle a case with the US financial regulator. She had been charged for promoting a crytpo asset on Instagram, without disclosing that she had been paid $250 000 to do so.
The law in the US states that anyone who has been paid to promote any kind of crypto must be clear about who has paid them, and how much. And the regulator took Kardashian to task for not doing so.
While this was a particularly high profile case, it is far from the only example of celebrities or influencers promoting crypto on social media. And a new study conducted by researchers from four US universities has revealed just how seriously investors should take the warning from the SEC that this “advice” should be treated with a great deal of caution.
The researchers looked at what happened to the prices of crypto tokens promoted by prominent social media influencers. It analysed 36 000 tweets by 180 individuals, mentioning over 1 600 different cryptocurrencies.
“Our primary results indicate that crypto-influencers’ tweets are initially associated with positive returns,” the researchers found. “However, these tweets are followed by significant negative long-horizon returns, suggesting that such recommendations generate minimal long-term investment value.”
What the study found specifically is that, on average, a tweet from a prominent person was followed by a 1.83% gain in the price of the crypto they mentioned the first day. But, within just three months, those same tokens were showing an average loss of 19%.
So while there was a short term positive for those who followed crypto advice on social media, those gains were quickly, and heavily, eroded.
The findings raise concerns that many people promoting crypto on social media might really only be serving their own interests. They know the price is likely to go up immediately after their tweet. That gives them the chance to sell out at a profit while others are still willing to buy, and then move on to something else.
This has serious implications for those that follow this advice, particularly since many “experts” promote lesser-known tokens that are a lot harder to sell than something like Bitcoin. Once the prices of these cryptos start going down, people can therefore find it hard to get out. And that means they are locked in to making losses.
This is one of the risks in crypto that many people don’t consider. When there is positive sentiment and prices are going up, people don’t worry about whether they will be able to sell out or not.
But when prices start falling and the mood changes, many people find that they can’t sell even if they wanted to. And in cases where the price goes to zero – which has happened a number of times – these people are left with completely worthless cryptocurrencies.
This also raises the second concern about advice from social media influencers when it comes to crypto.
Of all the tweets that the study covered, 85% were positive and encouraging people to buy. Only 15% were negative.
“No one is telling you when to get out,” the researchers pointed out.
This must raise questions about how impartial those promoting crypto on social media really are. If they are only ever encouraging their followers to buy without also helping them to understand that a sound investment approach also includes knowing when to sell at the right price, then their advice is certainly questionable.
Which is why Kim Kardashian’s run-in with the regulator is not just a piece of celebrity gossip. It should serve as a warning to investors that they should treat these social media influencers with a lot more caution when it comes to deciding what to do with their money.
To discuss your investment options, speak to a professional.
Complete Your Financial Plan
Sign Up To Our Mailing List
October 4 - Why Your Marital Contract Really MattersOctober 3 - How to Avoid Being Scammed by Email FraudstersOctober 2 - The Stock Market Indices to Watch When Monitoring Equity PerformanceOctober 1 - Why do Some People Have a Problem Spending Money?September 4 - The Difference Between Being Rich and Being WealthySeptember 3 - The Ins and Outs of Buying Offshore PropertySeptember 2 - A Good Budget Doesn’t Limit Spending, it Prioritises itSeptember 1 - Should you pay off your home loan?August 4 - How to Take Advantage of the Donations Tax AllowanceAugust 3 - Five Reasons why a Financial Windfall Must be Managed CarefullyAugust 2 - What’s Cooking with the Three-Pot System?August 1 - Make Sure Your Family is Financially Prepared for When You Pass AwayJuly 4 - A Must-Have for Couples who Choose not to Tie the KnotJuly 3 - Can Gratitude Make you Feel Better About Your Money?July 2 - Four Ways to Make the Most of RetirementJuly 1 - How to Invest When There’s So Much Bad NewsJune 4 - The Ins and Outs of Compulsory AnnuitiesJune 3 - Who is Influencing Your Financial Decisions?June 2 - R is for RebalancingJune 1 - Don’t let Money Ruin Your RelationshipMay 4 - Five Ways to Teach Kids About MoneyMay 3 - Much Ado About RiskMay 2 - Living Wills: A Must Have, Despite the Grey AreasMay 1 - What is True Wealth?April 4 - How the 2023 Budget Will Impact Your PocketApril 3 - Three Financial Imperatives for Women in DivorceApril 2 - Should You Ask ChatGPT for Financial Advice?April 1 - Compound Interest: The Eighth Wonder of the WorldMarch 4 - How a ‘Safe’ Fixed Deposit Might Still be RiskyMarch 3 - Thinking of moving to Australia? Bear these numbers in mindMarch 2 - Avoid These 6 Barriers to Wealth CreationMarch 1 - How Good do You Think You Are at Investing?February 4 - Is Money Stress Taking a Toll on You?February 3 - Why an Endowment is One of the Best Ways to Invest OffshoreFebruary 2 - Why too Much of a Good Thing Can be a Bad ThingFebruary 1 - Invest With FIRE and Never Look BackJanuary 4 - Why Lottery Winners End up Broke: The Importance of Your Financial ContextJanuary 3 - Discover the Freedom of a Tidy PortfolioJanuary 2 - Why You Absolutely Should be Investing in EducationJanuary 1 - Four Simple Steps to Start the Year on the Right Financial Foot
December 4 - What is This Volatility Risk People are Always Talking About?December 3 - Why You Need to Watch Out for The Butterfly EffectDecember 2 - 6 Ways to Achieve Financial FreedomDecember 1 - Three Books for the HolidaysNovember 4 - The Question of LoyaltyNovember 3 - Why do we Even Have Bull and Bear Markets?November 2 - Should I Buy a Holiday House?November 1 - Put Stocks, Rather Than Socks, Under the Tree This ChristmasOctober 4 - Can You Take Out Life Insurance on Someone Else?October 3 - Loss Aversion and Lifestyle Creep – How Behaviour Influences SavingOctober 2 - Why Timing Might be Everything in Retirement – Especially in a Bear MarketOctober 1 - Get Rich - Stay Rich Eight Mistakes Wealthy People Never MakeSeptember 4 - Capital Gains Tax: 10 Common Questions AnsweredSeptember 3 - The Risk That Many Investors Don’t Think AboutSeptember 2 - Much Ado About Regulation 28 and the Private InvestorSeptember 1 - The “Two Bucket” Retirement Savings System: What is it and Why is it Important?August 4 - Retirement Planning for Age-Gap CouplesAugust 3 - A Simple “50-15-5” Budget Hack for Women (and Men!)August 2 - Does Your Family Need a Constitution?August 1 - Women’s Month: Three Ways You Can Improve Your Money HealthJuly 4 - Five Things to Check When a Loved One Passes AwayJuly 3 - Rules of Financial Planning For a Special-Needs ChildJuly 2 - Why Your Financial Plan Should Cater For Possible DementiaJuly 1 - Why Inflation is the Most Important Investment BenchmarkJune 4 - How Relevant Is The 4% Rule of Thumb These Days?June 3 - Why You Should Treat Your Finances Like Your HealthJune 2 - Is Your Business Good Retirement Capital?June 1 - With the Limits Raised, How Much Should You Invest Offshore?May 5 - Quote of the Month: Challenging the Rejection of an Insurance ClaimMay 4 - Financial Products: The Less You Understand, the More You PayMay 3 - The Miracle of Investment Debit OrdersMay 2 - Five Things to Think About as Interest Rates RiseMay 1 - Stay Calm When the Bear ProwlsApril 5 - Quotes of the Month – The War in UkraineApril 4 - Smart Ways to Give: During and After Your LifetimeApril 3 - Take These Three Steps to Break the Money Shame SpiralApril 2 - When Things Don’t Go According To (The Financial) PlanApril 1 - What Amazon and Ford Can Tell Us About DiversificationMarch 4 - Quotes of the month – What the NFT?March 3 - How to Avoid Losing Your Life’s Savings to a “Tinder Swindler”March 2 - The Different Ways to Invest: What Does It All Mean?March 1 - Three Reasons You Shouldn’t Wait to Talk to Your Kids About MoneyFebruary 6 - Quote of the Month – Don’t Cash In Your Retirement SavingsFebruary 5 - Should You Top Up Your Retirement Annuities Now?February 4 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial DistressFebruary 3 - Don’t Let Delays in the Master’s Office Leave Your Family in Financial DistressFebruary 2 - Three Reasons an Insurer Could Cancel Your PolicyFebruary 1 - Investing: Men and Women See Things DifferentlyJanuary 4 - Quote of the month – Stay invested!January 3 - What SARS Says About Crypto Assets and TaxJanuary 2 - Three Ways to Leave a Legacy, And Not Just an EstateJanuary 1 - Red-Carding the Myth of The Rational Investor