‘Be prepared to lose your entire investment,‘ cautions the United Kingdom‘s regulator

As cryptocurrencies grow in popularity, investors should be cautious of speculative crypto tokens promoted by celebrities and social media influencers.

That was the message from Financial Conduct Authority chair Charles Randall, who urged investors to exercise caution in light of a recent crypto push by media celebrity and socialite Kim Kardashian West.

“When she was recently paid to encourage her 250 million Instagram followers to speculate on crypto tokens by 'joining the Ethereum Max Community,' it may have been the single largest financial promotion in history,” Randall wrote in prepared remarks for Monday's Cambridge International Symposium on Economic Crime.

Kardashian "didn't have to mention that Ethereum Max — not to be confused with Ethereum — was a speculative digital token launched a month prior by unknown developers — one of hundreds of such tokens that populate cryptocurrency markets," he explained.

MarketWatch attempted to reach out to a representative for Kardashian for comment.

While Randall stated that he was unsure whether that particular token was a scam, he highlighted that “scammers often pay social media influencers to assist them pump and dump new tokens based on sheer speculation.” Certain influencers promote coins that ultimately do not exist.”

That is because it is difficult to predict how long any crypto token will survive, given the lack of assets or real-world cashflows to support their valuations, however this does not deter individuals from investing due to a fear of missing out mentality. “There is no shortage of instances of people who have lost savings as a result of being enticed into the crypto bubble by delusory promises of rapid riches, sometimes as a result of listening to their favourite influencers, who are willing to betray their fans' confidence for a fee,” he said.

He reiterated that while 2.3 million Britons presently own these types of tokens, 14% of that total purchased them using credit, increasing the risk of loss. He stated that approximately a quarter of a million people feel they are protected by the Financial Services Compensation Scheme in the United Kingdom if something goes wrong.

“To be clear, these coins are not regulated by the Financial Conduct Authority. They are not protected under the Financial Services Compensation Scheme,” Randall explained. “If you purchase them, you should be prepared to lose your entire investment.”

Randall stated that regulation of cryptoasset marketing must include paid advertising on online platforms, and regulated organisations must demonstrate they have handled the hazards associated with unregulated activity involving digital tokens.

Investors in the United Kingdom have few options when it comes to publicly traded enterprises trading in cryptocurrency.

Among them is Argo Blockchain ARB, -6.29 percent, a cryptocurrency miner listed in the United Kingdom that filed for a $75 million initial public offering on the Nasdaq Global Market last month under the ticker ARBK, The company went public in 2018, and its shares have risen 331 percent thus far this year, following a 489 percent gain in 2020.

Meanwhile, KR1, +4.31 percent is a publicly traded investment firm focused on the blockchain ecosystem. Shares increased by 447 percent in 2020 and 575 percent thus far this year, following a 740 percent gain in 2017, but fell by 49 percent and 9 percent in 2018 and 2019, respectively.

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