There aren’t many silver linings to be found in the cryptocurrency crash. People have lost money, often those who could least afford it. But one welcome casualty is the army of laser-eyed social media “influencers”, toxic promoters in what must surely rank as the one of the most egregious product-placement manias in financial history. What comes next should be a healthier focus on consumer protection in an age of digital investing.

The simple identifier of a pair of laser eyes — a badge of optimism that bitcoin was headed for US$100 000 and beyond — at its peak adorned the avatars of congresswomen, billionaires, sports stars and, of course, hordes of rank-and-file crypto enthusiasts.

The lasers aren’t shining so brightly after the latest rout in cryptoland, with some going completely dark, presumably in an effort at reputational damage control. The Winklevoss twins are now busy promoting their next act as musicians in a covers band called Mars Junction; Elon Musk is insisting he never told anyone to buy; and celebrities who once flaunted their non-fungible tokens have now taken them down.

The real changes will come lower down the speculative food chain, as the fuel runs out for viral economic narratives promoting crypto trading among young and impressionable consumers eager to get rich quicker than the rest of society.

The business model of influencers is to take real dollars in exchange for promoting virtual cash. At one point, YouTubers were being offered $30 000 to promote crypto-linked investments. But those dollars are drying up as trading on exchanges diminishes and start-up funding disappears. Even Coinbase Global, with a market capitalisation of more than $12-billion, has slashed affiliate marketing fees, according to Business Insider. Influencers who just months ago were making $40 for each new sign-up to the platform are now being offered $2 to $3.

Celebrities such as Matt Damon and Larry David deserve the mudslinging for promoting ads, but at least their affiliations were clear. Not all social media personalities are scammers. But those with less transparent ties to the products they were promoting — such as YouTuber Logan Paul, a cheerleader to his 23 million followers for collapsed token Dink Doink, a project that he told the New York Times in May went “absurdly wrong” — are clearly eroding the trust of followers in general.

Transparency

And as the obvious ignorance of some crypto shills filters through to their fans — who will surely tire of the constant claims that crypto is an “inflation hedge” when it’s anything but — more regulatory intervention as well as voluntary crackdowns by TikTok and other social media platforms are likely not far behind. Some reality TV stars’ accounts have been shut down, with Snapchat suspending Jazz and Laurent Correia last year.

This isn’t about censorship, but transparency. Jackson Palmer, Dogecoin’s co-creator, has an umbrella term to describe our world: Griftonomics. Applying it to crypto, he says, reveals a network of “bought influencers”. One study by the Dutch financial markets regulator of 150 influencers covering more than a million followers found that only a tiny fraction — around 1% — weren’t making money from affiliated projects. many of which weren’t disclosed.

The authorities obviously have a role to play in cleaning up the worst excesses. Advertising overseers in the UK and France have done a decent job in halting misleading ad campaigns. Kim Kardashian and Floyd Mayweather were both sued in January, accused of hyping a digital currency called EthereumMax to investors. Mayweather had already been fined by the US Securities and Exchange Commission in 2018 for touting coins without disclosing a financial interest, while last year Kardashian was admonished by the UK Financial Conduct Authority for using her fanbase to promote “a speculative digital token created a month before by unknown developers”.

Misleading economic narratives about inflation hedges could be countered by qualified influencers, as with other forms of misinformation

But there’s an urgent need for more financial and digital literacy, too. Young people are saddled with debts at an increasingly early age and feel the pressure acutely. There’s also a feeling that wealth is accumulated through being lucky — born in the right generation or to the right family, or by backing the right token — rather than due to merit. That helps explain why “buy now, pay later” loans have flourished among those who struggle to repay them, and why a high percentage of people follow and listen to influencers.

There’s a role here for parents and educators, and maybe even specific apps with guardrails to allow for experimental spending with small amounts of cash. And it should also be possible for regulators to fight fire with fire: misleading economic narratives about inflation hedges could be countered by qualified influencers, as with other forms of misinformation.