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Beware the Celebrity Crypto Tokens: Opportunity or Minefield?

Beware the Celebrity Crypto Tokens: Opportunity or Minefield?

A trend is making a comeback: the celebrity-launched cryptocurrency token.

These are often branded with a celebrity’s intellectual property (IP), marketed to fans as unique investment opportunities.

However, this trend has sparked significant controversy and legal scrutiny — primarily revolving around whether these tokens qualify as securities and, if so, whether they violate current financial regulations.

The concept of celebrity tokens is relatively straightforward. A celebrity, leveraging their fame and brand, issues a digital asset on a blockchain platform.

These tokens can serve various purposes, such as granting fans exclusive access to content, merchandise, or events. In some cases, they are marketed as investment opportunities with the promise of potential financial returns.

The allure for fans is clear: they get to own a piece of their idol’s brand and potentially profit from their success.

But there is much to discuss first.

Key Takeaways

  • Celebrity-launched cryptocurrency tokens are making a comeback, marketed as unique investment opportunities using their intellectual property.
  • These tokens face controversy and legal scrutiny, especially around whether they qualify as securities under the Howey Test.
  • Celebrity tokens often involve investment of money, rely on the celebrity’s brand, and promise potential profits, making them likely to be classified as securities.
  • The SEC has taken action against several celebrities for promoting such tokens without proper disclosures, highlighting the legal risks.
  • Ethical concerns arise as celebrities’ influence may lead fans, who may lack financial literacy, to invest without understanding the risks, potentially resulting in significant financial losses.

The primary legal issue surrounding celebrity tokens is whether they qualify as securities under existing financial regulations. In the United States, the Securities and Exchange Commission (SEC) uses the Howey Test to determine whether a transaction qualifies as an investment contract and is thus a security.

According to the Howey Test, a transaction is considered an investment contract if it involves an investment of money in a common enterprise with an expectation of profits primarily from the efforts of others.

Applying the Howey Test to celebrity tokens, several key points emerge:

  • First, fans are indeed investing money to purchase these tokens.
  • Second, the success of the token is often tied to the celebrity’s brand and activities, which constitutes a common enterprise.
  • Finally, the expectation of profits is a significant factor, especially when tokens are marketed as investment opportunities.

Therefore, many celebrity tokens likely meet the criteria for being classified as securities.

The SEC has already taken action against several high-profile individuals and entities in the cryptocurrency space. For instance, in 2018, the SEC settled charges with professional boxer Floyd Mayweather and music producer DJ Khaled for promoting Initial Coin Offerings (ICOs) without disclosing that they were paid for their endorsements.

Similarly, in 2020, the SEC charged actor Steven Seagal for failing to disclose payments he received for promoting an initial coin offering (ICO).

Same for Kim Kardashian in 2022. She has been charged for promoting a crypto asset security from EthereumMax on social media without revealing her compensation for the endorsement.

Kardashian has consented to resolve the allegations, agreeing to pay penalties, disgorgement, and interest totaling $1.26 million and to assist with the Commission’s continuing inquiry.

I still remember SEC Chair Gary Gensler saying:

“This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn’t mean that those investment products are right for all investors.

 

“We encourage investors to consider an investment’s potential risks and opportunities in light of their own financial goals.”

These enforcement actions underscore the SEC’s stance that celebrity endorsements of cryptocurrency investments must comply with securities laws. Failure to do so can result in significant penalties, including fines and bans from participating in future securities offerings.

The Downsides of Celebrity Coins

Beyond the legal implications, there are ethical concerns associated with celebrity-launched tokens. Celebrities wield significant influence over their fans, many of whom may lack the financial literacy to fully understand the risks involved in investing in digital tokens.

This creates a power imbalance, where fans may be swayed by their admiration for the celebrity rather than a rational assessment of the investment’s merits.

Moreover, the volatile nature of the cryptocurrency market means that these tokens can experience significant price fluctuations. Fans who invest in these tokens may suffer substantial financial losses, leading to potential backlash against the celebrity. This raises questions about the responsibility of celebrities to protect their fans from financial harm.

To illustrate the potential pitfalls of celebrity tokens, consider the case of Akoin, a cryptocurrency launched by musician Akon. Akoin was marketed as a tool for economic empowerment in Africa, with plans to build a futuristic city in Senegal powered by the cryptocurrency.

While the project garnered significant attention, it also faced skepticism and criticism. As of early 2024, the project has yet to deliver on many of its promises.

There Be Dragons

While not all celebrity tokens are ICOs, the parallels are clear: the lack of regulation and oversight in the cryptocurrency space creates an environment ripe for fraud and financial mismanagement.

Proponents of celebrity tokens argue that they represent a new and innovative way for celebrities to engage with their fans. By issuing tokens, celebrities can create unique experiences and foster a sense of community among their supporters. Additionally, these tokens can provide a new revenue stream for celebrities, allowing them to monetize their brand in novel ways.

However, critics contend that the risks far outweigh the benefits. The potential for financial loss, coupled with the lack of regulatory oversight, makes celebrity tokens a precarious investment. Furthermore, the ethical concerns surrounding the exploitation of fan loyalty cannot be ignored. Celebrities have a responsibility to ensure that their actions do not harm their fans, and promoting potentially risky investments undermines this duty.

The phenomenon of celebrity-launched tokens presents a complex web of legal, ethical, and financial considerations. While these tokens offer a novel way for celebrities to engage with their fans, they also raise significant concerns about compliance with securities regulations and the potential for financial harm to investors.

The Bottom Line

As the cryptocurrency market continues to evolve, regulators, celebrities, and fans alike must remain vigilant and informed about the risks and responsibilities associated with this emerging trend.

The SEC’s enforcement actions and the volatile nature of the cryptocurrency market serve as stark reminders of the potential pitfalls. Ultimately, the question of whether celebrity tokens are securities is not just a legal issue but a broader ethical one.

If you notice, I did not mention any tokens or cite any recently launched examples. I do not want to create FUD; I just want to caution everyone.

Lastly, celebrities must weigh the potential benefits against the risks and consider their responsibility to their fans. Only by doing so can they operate in a way that is both legally compliant and ethically sound.

Be responsible to your fans. With great influence comes great accountability; wield your platform with integrity and purpose.

 

Source: https://www.techopedia.com/beware-the-celebrity-crypto-tokens-opportunity-or-minefield

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Biggest Friend.tech whale dumps tokens as users struggle to claim airdrop

Biggest Friend.tech whale dumps tokens as users struggle to claim airdrop

The largest airdrop recipient on Friend.tech has sold all their tokens just hours after the airdrop, leading to concerns over the token’s price action.

Just hours after the Friend.tech airdrop went live on May 3, the largest whale, known as “Murphys1d,” sold over 55,000 of the newly-issued Friend tokens, blockchain data shows.

Beyond the sell-off, some users were unable to claim their airdrop tokens, including crypto investor Luke Martin, who wrote in a May 3 X post:

“Watching the value of my airdrop go from 7 figures to 5 figures in the span of 2 hours while I keep refreshing the page trying to claim….still can’t claim. Adds insult to injury.”

Martin added that the whale wallet seems to be linked to a fake X account with no activity, enabling it to farm over 500,000 Friend.tech points risk-free.

The new Friend.tech (FRIEND) token has fallen over 52.5% since its launch, from $3.26 to just $1.32 as of 9:50 am UTC. The token’s price fell over 32% in the last hour before publication, according to CoinGecko data.

While the selling by the largest Friend.tech whale may impact the market in the short term, it doesn’t necessarily dictate a token’s long-term trajectory, according to Anndy Lian, intergovernmental blockchain expert and author of NFT: From Zero to Hero. Lian told Cointelegraph:

“While it might cause a short-term dip in price due to increased supply and potential panic selling, it doesn’t always mean a long-term downtrend. To me, it is a good thing […] The sell-off would mean a more decentralized distribution of tokens. A broader distribution reduces the risk of a single entity having excessive control over the project.”

However, Lian noted that the token’s value will mainly rely on the community’s trust in Friend.tech and how the team manages the current situation.

 

Airdrop farmers continue to plague token launches

The mysterious Friend.tech whale is another example of a professional airdrop farmer (squatter) who interacts with emerging protocols solely for the airdrop rewards, often with multiple wallets to compound rewards.

The main issue with airdrop farmers is that they tend to market sell all their airdropped tokens, creating significant sell pressure and resulting in more panic selling by legitimate protocol users.

An example of this came at the end of April, when the Omni Network’s OMNI token fell 55% in less than 18 hours following its airdrop, losing over half its market capitalization.

In March 2023, it was revealed that airdrop hunters consolidated $3.3 million worth of tokens from Arbitrum’s ARB airdrop from 1,496 wallets into just two wallets they had controlled.

 

Source: https://cointelegraph.com/news/friend-tech-airdrop-largest-recipient-sells-tokens

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

New Crypto Trend: Trading Tokens Before Release

New Crypto Trend: Trading Tokens Before Release

A new trend is taking off in the cryptocurrency community — as investors start to purchase tokens before waiting for them to hit the markets.

In a fast-paced industry, being an early investor is a crucial step as it allows individuals to potentially capitalize on significant price appreciation as innovative projects gain traction and adoption.

And now, investors are finding ways to start buying before the firing pistol has signaled the start of the race.

Here’s everything you need to know.

Key Takeaways

  • Investing in tokens before their release allows investors to potentially benefit from significant price increases as projects gain traction.
  • Platforms like AEVO and Hyperliquid have introduced new opportunities to speculate or hedge against future token prices, marking a shift from traditional ICOs to more dynamic pre-token trading environments.
  • Pre-token and point market sales have seen $50 million in trades despite low liquidity.
  • The pre-token and point markets are heavily dominated by buyers, a sign of potential investor confidence.
  • Despite the enthusiasm and high trading volumes, these markets face challenges such as lower liquidity and higher volatility compared to post-TGE markets.

Pre-Token & Point Markets Take Off

Until recently, investors could purchase cryptocurrencies prior to their official launch through their initial coin offering (ICO), a fundraising mechanism used by new decentralized finance (DeFi) projects to raise capital by selling tokens to investors prior to a project’s full development.

This allows anyone to speculate on or hedge against the price of a token before its launch, creating a new era of crypto investing.

In short, pre-token and point markets are platforms that allow people to buy or sell the promise of receiving tokens or points at a future date, often before the official release of the token.

Such markets are divided into two main types: one where trades are settled with cash and another where the actual tokens or points are exchanged. Such a setup lets investors speculate on the future value of tokens or points, potentially profiting from changes in their price before they become available.

According to Anndy Lian, an inter-governmental blockchain adviser, by participating in pre-sales, investors get the opportunity to directly support the development and growth of new projects, as well as create a sense of community and alignment with the project’s goals.

He said:

“This community effect can drive demand as more people become involved and invested in the token’s success. Effective marketing campaigns can generate significant hype around a token before its release, leading to increased demand as investors don’t want to miss out on what is being promoted as a promising opportunity.”

A Keyrock report released on April 30 uncovered that the crypto community has seen a notable surge in interest and participation in these pre-tokens and point markets with $50 million already being traded.

This high level of activity reflects a growing enthusiasm among investors to engage with new crypto projects at an early stage.

The markets predominantly cater to buyers, with the majority of orders coming from users eager to purchase tokens or points ahead of their public release. This eagerness is driven by the potential for high returns on investments as token values can increase significantly upon official launch.

Pre-token & Point Markets See Higher Buyer Dominance

According to the Keyrock report, the markets showed a pronounced buyer dominance, with most tokens analysed displaying a higher buying than selling volume.

This trend suggested that investors were more interested in acquiring tokens rather than selling them, believing in the potential for token value appreciation after their Token Generation Event (TGE).

The report highlighted:

“Most tokens exhibit a buying volume significantly higher than the sell volume. Only 5 out of 57 tokens that have been traded on Whales Market show a selling volume that exceeds the buy volume. Participants in Whale Markets demonstrate a strong preference for buying tokens, points, and runes.”

Data on buying vs selling tokens from Whales Market. Source: Keyrock Data Intelligence
Data on buying vs selling tokens from Whales Market. Source: Keyrock Data Intelligence

Data on buying vs selling tokens from Whales Market. Source: Keyrock Data Intelligence

Liquidity Remains Low

Despite optimistic trading volumes, pre-token and point markets still face challenges related to liquidity.

The Keyrock report highlighted that compared to traditional post-TGE markets, pre-token and point markets are relatively less liquid, meaning they have relatively fewer buyers and sellers, which could lead to price volatility and make it harder to execute larger orders without affecting the market price.

Additionally, sometimes the demand for a pre-release token is driven more by hype and marketing than by the project’s fundamentals, which could lead to an inflated valuation that does not reflect the token’s true worth, Lian explained.

“Projects that prioritize transparency, communication, and community trust are more likely to succeed in pre-release trading. Investors will gravitate toward projects they believe in.”

Technical issues could also serve as a major potential risk in purchasing cryptocurrencies before they fully launch since the technology behind the asset is only just being developed.

The Bottom Line

As the landscape of pre-token and point markets continues to evolve, strategic considerations and forward-thinking approaches are essential for both investors and project developers.

The surge in trading volumes and the enthusiasm observed in these markets suggest a robust interest in early-stage investment opportunities.

According to Lian, this has been an ongoing trend since the beginning of the crypto ICO period, and the act of trading tokens before their official release is likely to continue into the future as well. However, investors should exercise caution when investing in new projects and never invest money they cannot afford to lose.

 

Source: https://www.techopedia.com/news/exploring-crypto-pre-token-and-point-markets

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j