Cryptocurrencies have become increasingly popular over the past year, especially Bitcoin which has increased over 800 percent in value.[1] Today, the cryptocurrency is worth over $7,300 per bitcoin. Bitcoin’s value has jumped this week due to the Chicago Merchantile Exchange’s (CME) statement that they are planning to launch Bitcoin futures in this year’s fourth quarter.[2] Providing futures, which are contracts setting forth the time and date an asset must be purchased or sold, will “provide investors with transparency, price discovery and risk transfer capabilities.”[3] Reuters explains how this is “a major step in the digital currency’s path toward legitimacy and mainstream financial adoption”[4] if this plan receives approval from regulators. However, offering bitcoin futures to promote cryptocurrencies is not what is troubling regulators.
The Securities and Exchange Commission (SEC) published a statement on November 1, 2017 regarding the potential unlawful promotion of celebrity endorsements of cryptocurrencies.[5] The SEC explains that investments in Initial Coin Offerings (ICOs) can include securities, therefore individuals who offer and sell these securities must comply with U.S. federal securities laws or they will be violating the anti-touting and anti-fraud provisions. The SEC states that:
“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. A failure to disclose this information is a violation of the anti-touting provisions of the federal securities laws.”[6]
As the use of cryptocurrencies becomes more popular, the SEC wants to ensure that individuals are making strategic and safe investment decisions rather than making investments based on a celebrity endorsement. Typically these celebrities do not have the “expertise to ensure that the investment is appropriate and in compliance with federal securities laws”, therefore it is essential that the details of the promotion are clearly disclosed.[7] Even the U.S. Federal Trade Commission warned ninety celebrities, “influencers”, and brands that endorsements for products on the market must disclose to the public whether there was a paid deal.[8] The SEC notes that investors should always do independent research before investing and has provided an Investor Alert guideline available here.
[1] Kelly, J. (Nov. 1, 2017) Reuters. Available at: http://www.reuters.com/article/us-global-markets-cryptocurrencies/cryptocurrencies-total-value-hits-record-high-as-bitcoin-blasts-above-6500-idUSKBN1D14BM. Accessed on Nov. 3, 2017.
[2] CME Group ( Oct. 31, 2017) “CME Group Announces Launch of Bitcoin Futures.” CME Group News Release. Available at: http://www.cmegroup.com/media-room/press-releases/2017/10/31/cme_group_announceslaunchofbitcoinfutures.html/. Accessed on Nov. 3, 2017.
[3] Ib. per Terry Duffy, CME Group Chairman and Chief Executive Officer.
[4] Kelly, J. (Nov. 1, 2017) Reuters. Available at: http://www.reuters.com/article/us-global-markets-cryptocurrencies/cryptocurrencies-total-value-hits-record-high-as-bitcoin-blasts-above-6500-idUSKBN1D14BM. Accessed on Nov. 3, 2017.
[5] U.S. Securities and Exchange Commission (Nov. 1, 2017) “Statement on Potentially Unlawful Promotion of Initial Coin Offerings and Other Investments by Celebrities and Others.” SEC Public Statement. Available at: https://www.sec.gov/news/public-statement/statement-potentially-unlawful-promotion-icos. Accessed on Nov. 3, 2017.
[6] Ib.
[7] Ib.
[8] Fair, L. (Sept. 7, 2017) “Three FTC Actions of Interest to Influencers.” Federal Trade Commission. Available at: https://www.ftc.gov/news-events/blogs/business-blog/2017/09/three-ftc-actions-interest-influencers. Accessed on Nov. 3, 2017.