Engineers and investors are not the only ones getting rich in cryptocurrency markets. According to a Bloomberg report, promoters of initial coin offerings (ICOs) are also minting money thanks to a boom in the ICO market. (See also: What Crackdown? ICOs Have Raised $2 Billion This Year.)
What Is The Role Of Social Media Influencers In An ICO?
Here’s how it works. Each ICO sets aside money for bounty campaigns. The campaigns are run in three phases: before, during, and after the offering. The campaign takes on a different form depending on the offering stage. For example, discounted and free tokens are offered to early stage investors and entrepreneurs respectively before an ICO as incentives.
Social media influencers enter the campaign during the second stage, when the ICO is promoted to mainstream investors. That promotion can take the form of a tweet or a Youtube video informing users about the ICO or analyzing its prospects. Popular platforms for ICO bounty campaigns include Facebook, Youtube, Twitter, and online platform Bitcointalk. Bounty hunters, as the social media influencers are called, comprise a diverse bunch, from celebrities, such as Paris Hilton and John McAfee, to Youtube users and bot agencies who flood social media channels with information about an ICO. Solume, a social media monitoring service, has estimated that 18% of crypto-related posts on Reddit, Twitter, and Bitcointalk.org are from bounty hunters. (See also: Bitcoin Price Will Hit $1 Million By 2018: John McAfee).
Endorsement from a celebrity can translate into a significant first day price bump for investors and entrepreneurs. Not surprisingly, celebrities are compensated handsomely for their effort. McAfee is, perhaps, the most vocal and famous of all celebrity endorsers. He has already revealed that he charges $105,000 per tweet to promote an ICO.
An End To The Party?
The party may not last long, though. The Bloomberg article quotes Lex Sokholin, global director of Fintech strategy at Autonomous Research, as saying that the SEC will take a “very hard stance” after the relationship between an ICO’s price and social media promotion becomes clear.
Some of that is already coming to a pass. “Any celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion,” the agency wrote in a circular released last year and warned that such individuals would be liable for “potential violations of the anti-fraud provisions of the federal securities laws.” McAfee said that he stopped ICO promotion activities this year after receiving “threats” from the SEC previously. The SEC also halted an ICO backed by boxer Floyd Mayweather and charged its founders with fraud in April.
Other developments within the ICO market have also discouraged excess spending on marketing through social media influencers. For example, research by TokenData earlier this year found that most entrepreneurs prefer to raise a majority of their capital in the Pre-ICO stage from institutional investors and accredited investors. (See also: Bitcoin Price Sinks Amid Crypto Investigation).
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin and litecoin.