False advertising rules on cryptocurrencies are tightened

Cryptocurrency companies usually have big marketing budgets to promote their digital currencies, so it’s hardly surprising that their reach is far and wide. In the United States, their budgets have extended to them advertising during the Super Bowl where prime 30-second spots cost $7 million this year according to AdAge.

But not all adverts have been above board and it’s taken industry watchdogs (and in some cases industry players too) to create some rules and regulations on how to conduct themselves properly so that consumers aren’t scammed or misled.

So what’s the problem?

Large crypto companies and collapsed crypto exchange FTX have spent billions on advertising through high-profile commercials. It’s not clear whom the regulators are targeting but there are reports of adverts with flawed messaging and some that have been misleading about the risks.

Super Bowl adverts are supposed to be light-hearted and fun, but this year the crypto adverts came under some scrutiny. Richard Smith, investing expert and chief executive officer at risk management tool RiskSmith, conveyed his disappointment in the industry.

He told Cointelegraph: ‘These commercials didn’t disclose any risks involved with high levels of financial speculation. There was no recognition of risks at all, in fact – only rewards. I understand that Super Bowl ads are supposed to be fun and light-hearted, but these were not authentic.’

Celebrities have also come under fire for promoting crypto companies and allegedly not highlighting the downsides. For example, billionaire socialite Kim Kardashian is currently being sued by people who have formed a class-action lawsuit against her and several others who promoted EthereumMax.

Before celebrities promoted currencies like EthereumMax or EMAX, people hadn’t really heard much about them. The plaintiffs in the case against Kardashian are claiming to have invested their money after ‘viewing numerous celebrity endorsements of EMAX’, according to Decrypt. In her defence, Kardashian claims to not have been giving ‘financial advice’ in her social media posts.

Misleading claims about investing in crypto is a worldwide problem and many other countries are making moves to clamp down on the industry and increase regulation. In the United Kingdom the Advertising Standards Authority has clamped down on more than 50 crypto firms to review their adverts to make sure they are compliant with the rules. Most have been accused of misleading the public.

Local scams

South Africa has had its fair share of financial scams and the people or groups behind them tend to prey on those who desire money and an increased status in society. Barry Tannenbaum, for example, is a notorious investment scammer who preyed on people’s desire to avoid tax and invest offshore.

Cryptocurrency scams and adverts tend to follow the same type of formula. They purport to make people well-off in a very short space of time (often promising unusually high returns), without highlighting any of the downsides. But South Africa is increasing its laws too, considering this.

South Africa’s clampdown on crypto

Last month the Advertising Regulatory Board (ARB) added a new clause that deals with cryptocurrency products to the Code of Advertising Practice. The rules are aimed at protecting consumers from being misled by unethical advertisers.

Clause 17 of Section III says: ‘Advertisements must expressly and clearly state that investing in crypto assets may result in the loss of capital as the value is variable and can go up as well as down. The wording should be, or should communicate the same, as the following example: Investing in crypto assets may result in the loss of capital.’

‘Rules around ethical advertising are non-negotiable for us as an industry,’ says Marius Reitz, general manager for Africa at Luno, who has spear-headed the project. ‘We don’t want rogue advertisers making claims that mislead vulnerable consumers about the reality of crypto investment. It is important to us that consumers enter this exciting market with their eyes open and their expectations realistic.’

It’s clear that in the case of crypto adverts, if it sounds too good to be true then it generally is.