The “Elon effect” shows how opinion leaders shape the FinTech market

The “Elon effect” shows how opinion leaders shape the FinTech market

The power that influencers have to influence public perception and therefore cause changes in the value of a product, service, asset or currency has increased to the point where they can crash or lift entire markets with their content and take.

The Elon Effect

In 2021, Elon Musk could send the price of the famous memecoin Dogecoin (DOGE) up by 50% with just a single tweet. He still holds a lot of power over the crypto markets, and several figures in the cryptocurrency world and traditional finance have accused Musk of manipulating the cryptocurrency market with just a few tweets.

Other popular influencers can cause similar effects through social media posts or promotional videos. But why do they have so much power? Well, it all comes down to the power of influencer marketing; Research shows that approximately 80% of consumers are more likely to buy products promoted by influencers rather than advertisements.

Related: Taking down crypto influencers is one step that will help heal the market

When it comes to the crypto market, digital advertising has been partially irrelevant over the years due to several factors, the main one being that Google, Twitter and other social media platforms had banned crypto ads in the past. Therefore, marketing coins/tokens via influencers was the main marketing option for many cryptocurrency projects.

Let’s take FTX, for example – one of the top three crypto exchanges. It went from being a nearly $40 billion crypto powerhouse to filing for bankruptcy. The founder, Sam Bankman-Fried, has been seen posting strange, cryptic messages on Twitter following the FTX meltdown. Why? Who knows. But it confuses users, investors and even FTX employees.

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With these ongoing shady and unclear messages, he only adds more fuel to speculation and all kinds of theories – which only worsens the current scenario of the cryptocurrency industry.

Why we shouldn’t follow the advice of influencers

The first, most important problem? Influencers’ advice and opinions are not always absolute or necessarily correct.

Even more, some of these influencers may not even have any familiarity or knowledge of the product/asset/coin they are promoting. Such was the case with reality TV star Kim Kardashian, who received $250,000 to promote EthereumMax, a smart contract-enabled platform for building decentralized applications. Kardashian then had to pay $1.26 million in penalties, disgorgement and interest to the United States Securities and Exchange Commission.

“This case is a reminder that when celebrities or influencers endorse investment opportunities, including crypto-asset securities, that does not mean those investment products are right for all investors,” SEC Chairman Gary Gensler said in a statement at the time.

This raises an obvious question that many people don’t seem to ask themselves: Are we really going to buy anything from a reality TV star who has never had anything to do with cryptocurrency?

Another problem with influencers that needs to be mentioned is that many of them can be found violating advertising rules and misleading investors with shady products/assets. In the case of India, crypto influencers are responsible for 92% of crypto ad breaches.

The solution to these problems: Always DYOR – do your own research. It is understandable that not everyone has time to research a project or a currency before investing in it, but it is also not reasonable to blindly follow the advice of crypto influencers. Investors should take the time to personally check a potential investment vehicle and find answers to the main questions that concern them.

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The power opinion leaders have in today’s markets

Influencers have been heavily criticized for pumping or dumping cryptocurrencies where they have a position in the market. For example, in 2017, the late John McAfee admitted to charging crypto projects more than $100,000 per tweet to promote their initial coin offerings, in addition to taking a significant percentage of their token supplies.

Popular crypto influencer Ben Armstrong, also known as BitBoy Crypto, admitted to receiving payments from crypto projects to promote them on his YouTube channel for years – causing many of his viewers to suffer significant losses.

Love or hate influencers, they need to be regulated

There are several examples that could be taken up here. But the bottom line is that promoting a cryptocurrency project or coin almost feels like a synonym for “scam” in today’s crypto market.

Therefore, it seems sensible that countries and jurisdictions across the globe lay down proper guidelines to regulate the degree of influence opinion leaders have. A good example of influencer regulation comes from Spain. The Mediterranean country established a set of rules that all influencers must follow before promoting cryptocurrencies. Otherwise, they risk fines of up to 300,000 euros (just over 316,000 dollars).

Related: Potential US ban is a reminder that influencers should dump TikTok

Influencers have great power over the crypto market: With a single post on social media, they can deter or scuttle an entire crypto product or coin. And the bigger the influencer, the bigger the effect they have on the market. Therefore, they should be held accountable for their words and actions. If official regulation is required to make this happen, so be it.

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Vladimir Gorbunov is the founder and CEO of Choise.com. He previously worked as CEO of Workle, an internet-based sales and service platform. He graduated from Finlandia University with an International Business Degree.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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