Recent studies indicate a correlation between the involvement of celebrities in promoting cryptocurrency projects and the increased probability of those projects being fraudulent.
In the study titled “The Impact of Celebrity Endorsements on Cryptocurrencies,” Joshua T. White and Sean Wilkoff, both former economists at the SEC, examined the consequences of celebrities endorsing different initial coin offerings (ICOs).
The researchers discovered that there was a significant rise in fraudulent activity related to initial coin offerings (ICOs) that received endorsements from celebrities. Their findings indicated a 23-26 percentage point increase in scams until September 2019 and a further 39-40 percentage point increase in fraudulent ICOs until April 2023.
The researchers emphasized that this “suggestive evidence” serves as a warning sign for investors. The study specifically analyzed the actions of 21 celebrities, such as Floyd Mayweather, Snoop Dogg, Paris Hilton, and Lionel Messi, during the period from 2016 to 2018.
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Joshua T. White explained in an email to Decrypt that their assumption was that celebrities could enhance the visibility of cryptocurrencies due to their extensive social media presence, which could trigger a fear of missing out (FOMO) among potential investors.
Considering the nascent nature of blockchain and cryptocurrency, the researchers were uncertain whether celebrities possessed the expertise to identify reputable projects or the knowledge about legal obligations when endorsing a specific coin without disclosing any compensation.
Additionally, the researchers discovered a notable pattern: celebrity endorsements were more likely to be associated with scams when the celebrity’s profession did not align with the product of the ICO, based on their sample data.
On the other hand, the researchers found that when a celebrity’s profession aligns with the product of the ICO, such as a soccer player endorsing an ICO that aims to fund a blockchain-based sports gambling website, the likelihood of it being a scam decreases.
According to White’s comments to Decrypt, this observation indicates that celebrities tend to exercise greater diligence or possess a better comprehension of the product they are endorsing when they understand the specific use case of the token. To illustrate, he drew an analogy between a soccer player endorsing cleats versus shampoo, suggesting that the player would likely have a better understanding of the cleats’ features compared to the chemical composition of the shampoo.
In the research’s conclusion, the authors emphasize the importance of improved understanding and due diligence for both investors and celebrities when it comes to cryptocurrencies. They underscore the necessity for both parties to familiarize themselves with the associated risks before endorsing any digital asset.