Fred Razak, Chief Trading Strategist at CMTrading, warns potential investors to exercise utmost caution when encountering unsolicited cryptocurrency offers, regardless of celebrity endorsements.
Amid the 2021 crypto boom, prominent figures such as Kim Kardashian, Floyd Mayweather, and NBA hall-of-famer Paul Pierce enthusiastically endorsed a cryptocurrency known as EthereumMax to their vast followings.
The result? A frenzy of investors flocking to buy the coin, only for them to witness its value plummet dramatically, causing them substantial financial losses.
In a recent development, US District Judge Michael Fitzgerald of Los Angeles has refused to dismiss a class action lawsuit against these celebrities, alleging their deceptive promotion and profiting from false claims about the coin’s worth.
This case, beyond marking the end of such schemes, serves as a stark indicator of the alarming surge in celebrity-backed online crypto and non-fungible token (NFT) scams.
Numerous cautionary tales
Consider the tale of Kim Kardashian, who initially touted EthereumMax on her Instagram platform, propelling the coin’s market cap to nearly US$250 million (R4.68 billion). Yet, by late 2022, its value had dwindled to near worthlessness, leaving investors with negligible returns.
Larry David is facing legal repercussions for his involvement in a Super Bowl ad promoting a now-bankrupt crypto exchange called FTX.
Matt Damon’s commercial for Crypto.com resulted in an influx of investors, only for them to end up losing approximately 60% of their investments.
Similarly, other celebrities who ventured into the NFT market and hyped it as the next big investment opportunity found themselves in financial distress.
YouTuber Logan Paul openly admitted to losing nearly all of his $623,000 (R11.67 million) investment in an NFT, which had dwindled to a mere $10 (R187) in value a year later.
Justin Bieber also suffered a substantial setback, losing $1.24 million (R23.23 million) on a “Bored Ape” NFT purchase. Their promotion of NFTs inspired others to follow suit, often resulting in substantial financial losses.
The vast disparity in coin values, ranging from mere cents to $60,000, can be unsettling for traders. It lacks the stability of clean money and feels more like hype.
This has been repeatedly shown, as celebrity-driven hype continues to send new cryptocurrencies soaring in value, only to crash in a classic pump-and-dump pattern due to the absence of intrinsic value to sustain prices.
Celebrity endorsements should raise red flags
The involvement of celebrities in promoting cryptocurrencies inherently raises suspicion.
Legitimate cryptocurrency creators typically pursue a conventional path: advertising, building a dedicated community, and demonstrating tangible progress toward real-world applications.
However, celebrity endorsements suggest that backers are primarily interested in artificially inflating short-term value.
The situation has taken a disconcerting turn, with cryptocurrency creators no longer relying on actual celebrities for endorsements.
Why pay a star when you can replicate their likeness, create countless online advertisements, and promote the coin that way?
Some individuals might even receive unsolicited online messages from impostors claiming to be celebrities, offering a chance to invest in their cryptocurrency by downloading an app or making a simple online payment.
Many celebrities excel in fields far removed from crypto and financial investments. Their knowledge in these areas should not be considered gospel, and their involvement in commercials is often driven by ignorance and greed rather than expertise.
Investors must diligently research any investment opportunity before committing their funds, irrespective of any celebrity endorsements.
Any unsolicited investment offer should be met with scepticism, and individuals uncertain about its legitimacy should seek advice from a financial adviser.
This post was based on a press release issued on behalf of CMTrading.