Not just engineers and investors are making money in cryptocurrency markets. According to Bloomberg, promoters of initial coin offerings (ICOs) are also making money as the ICO business booms. (Also see: What Crackdown? This year, ICOs have raised $2 billion.)
What Is The Role Of Social Media Influencers In An ICO?
This is how it works. Each ICO allocates funds for reward programs. The campaigns are implemented in three stages: before, during, and after the offering. Depending on the stage of the offering, the campaign takes on a distinct shape. As an example, reduced and free tokens are provided as incentives to early stage investors and businesses prior to an ICO.
During the second stage, when the ICO is pushed to mainstream investors, social media influencers join the campaign. This advertising may be a tweet or a YouTube video educating consumers about the ICO or appraising its potential. Facebook, YouTube, Twitter, and the online forum Bitcointalk are all popular channels for ICO bounty campaigns. Bounty hunters, or social media influencers, range from celebrities like Paris Hilton and John McAfee to Youtube users to bot companies that flood social media channels with information about an ICO. According to Solume, a social media monitoring tool, 18% of crypto-related postings on Reddit, Twitter, and Bitcointalk.org are from bounty seekers. (See also: John McAfee predicts that the price of bitcoin will reach $1 million by 2018.)
A celebrity endorsement may result in a big first-day price increase for investors and businesses. Not surprisingly, celebrities are well rewarded for their efforts. McAfee is likely the most vociferous and well-known celebrity booster. He has previously said that he charges $105,000 every tweet used to promote an ICO.
An End To The Party?
However, the celebration may not continue long. According to the Bloomberg story, Lex Sokholin, global head of Fintech strategy at Autonomous Research, the SEC will take a “very strong position” once the link between an ICO’s price and social media advertising is established.
Some of this is already happening. “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 issued last year, warning that such individuals would be liable for “potential violations of the federal securities laws’ anti-fraud provisions.” McAfee said that he ceased ICO advertising operations this year after previously getting “threats” from the SEC. In April, the SEC also suspended an ICO supported by boxer Floyd Mayweather and accused its creators with fraud.
Other changes in the ICO industry have discouraged excessive expenditure on social media influencer marketing. For example, TokenData study earlier this year showed that most entrepreneurs prefer to raise the bulk of their funding from institutional and accredited investors during the Pre-ICO stage. (Also see: Bitcoin Price Drops Due to Crypto Investigation.)
Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the writer to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author holds a minor quantity of bitcoin and litecoin as of the date this article was published.
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