Some influencers paid thousands to endorse cryptocurrency projects

Ben Armstrong says his crisis of conscience came in January of this year, when he felt he had to stop a business practice he – and many others at his work – had engaged in for years.

Armstrong is one of the most watched crypto influencers on YouTube. His channel, BitBoy Crypto, has amassed over 1.5 million subscribers. Over the years, Armstrong said, crypto companies have accepted payments to offer new products to a wider audience of subscribers. He says he regrets it now because it led to some painful losses for his own audience.

In the fall of 2020, Armstrong announced his partnership with a cryptocurrency called DistX, calling it his most trusted coin. He said the whole idea of ​​DistX was to stop scams in crypto — but Armstrong said the project ultimately ended up being a scam. The project team pulled the rug, meaning they worked to increase the market cap and then disappeared – investors holding the bag. The coin is now down 99%, worth less than a penny.

Crypto influencer Ben Armstrong recorded a live episode of Bitboy Crypto in his studio.

CNBC

While he’s accepting raises, Armstrong said he previously earned more than $30,000 for a single endorsement, including his promotional video for DistX, and could easily earn more than $100,000 a month in ads alone.

Armstrong now claims he is responsible for the losses caused by his followers. “I mean, sure, I do,” he said. “I hate it when we talk about things that don’t do us any good.”

Although Armstrong said he stopped accepting pay raises in January, other influencers are still crowding this lucrative market. CNBC found that some of these online personalities were being paid thousands to endorse dubious schemes. This spring, an anonymous blockchain sleuth published a list on Twitter naming 44 YouTube crypto personalities and the prices for paid ads. According to that list, some of these influencers were paid up to $65,000 per promotional video.

After the coin crash, Armstrong says he used the money he made from promoting DistX to give back to his followers after the coin crash. However, he claims that this was the only project he intervened in after investors took his advice and lost money.

Although Armstrong revealed that he was not a trained financier, many of the initiatives he promoted had failed. After other cryptocurrency ventures such as Ethereum Yield, Cypherium and MYX Network fell in value, he removed promotional videos for them from his channel.

CNBC reached out to these influencers on the list to verify their fees: Some said the prices were inflated, and those willing to share their prices said they made at least $1,000 for each promotional video.

Unlike Armstrong, who claims to disclose all promotional videos he’s paid for, some influencers don’t share that they’re getting paid more for landing projects. According to Armstrong, many of the companies that contacted him when he was charging for endorsements didn’t want him to tell their audience that the content was sponsored.

Armstrong said that five years ago many influencers wouldn’t disclose that they were paid to plug projects, but today most influencers are upfront about promotions with their audience.

But state regulators warn there are still influencers who lack transparency. Joe Rotunda, director of the Texas State Securities Board’s Division of Enforcement, said the paid promotions were not only undisclosed, but encouraged fraudulent attempts.

Joe Rotunda, director of the Texas State Safety Board’s Division of Enforcement.

CNBC

Rotunda and a group of regulators recently filed enforcement actions against two casinos in the metaverse, where users can attend virtual concerts, buy digital assets or even play casino games. They cited Flamingo Casino Club and Sand Vegas Casino Club, accusing them of trying to defraud retail investors by selling unregistered securities.

Neither casino responded to requests for comment.

“We need to identify scams that are out there, especially scams that are tied to metawares,” Rotunda said.

Rotunda said his team discovered fraudulent Metaverse activity through ads from crypto influencers on YouTube. He mentioned two popular influencers who promoted Flamingo Casino Club in videos that reach about 80,000 viewers.

A cease-and-desist order against Flamingo Casino Club alleged that one of the influencers promoting the casino “engages and pays promoters to promote their products through his YouTube channel.” He also found messages on a popular chat platform that one of these influencers “brought a lot.” [of investors] From their videos.”

CNBC reached out to two influencers named in the enforcement action about whether they took undisclosed payments to promote Metaverse Casinos, which is accused of defrauding investors.

The influencer, known as FLOZIN, said he wasn’t paid for his endorsement, but he appears to have deleted his promotional video after CNBC started asking questions. Dream Green Show, a second influencer, did not respond to CNBC’s request for comment.

The ads in question were not run by crypto influencers on YouTube. On the House Ethics Committee, Republican Rep. of North Carolina. Madison announced in May that it was investigating Cawthorne’s improper cryptocurrency ads.

Disclosures Released after the committee’s announcement, Cawthorn bought $100,000 and $250,000 worth of “Let’s Go Brandon” cryptocurrency. He was seen in a photo with the coin’s co-founders Instagram Next week, comment “Tomorrow we go to the moon!” The day after news broke of a sponsorship deal with a NASCAR driver, the coin’s price surged 75%.

Cawthorne, who lost his primary election in May, said he sold the coin for $100,000 to $250,000 the day after the rally. Over the next few weeks, NASCAR reneged on the deal and the coin’s value plummeted.

Taylor Monahan, product lead for a digital currency wallet called Metamask, said he is “vehemently opposed” to all partnerships with crypto influencers.

Taylor Monahan, Product Lead at digital currency wallet MetaMask.

CNBC

“I would urge anyone, even if they consider themselves to be legitimate, not to create fake partnerships like this,” Monahan said.

Monahan said he is reluctant to support banning online advertising because of the negative consequences of controlling and regulating cryptocurrencies. Instead, he says, the crypto community can come together to invite partnerships and make them less common.

Armstrong said the decision to withhold pay raises has put a burden on him because he can post freely. But that said, I understand why other people make sponsored videos.

“Obviously, we’ve done it for a long time because it’s a great way to build your business,” Armstrong said. “But you have to do it in an honest way.”

Rotunda warned that more interest in decentralized currencies and metaverses will increase, and scams will appear. Regulators should focus on digital asset transactions, as crimes are yet to be detected.

“What we’re seeing is the tip of the iceberg,” Rotunda said.

However, the crypto market is down 49% year-to-date compared to 2021. Less legitimate crypto influencers in a bear market could face more scrutiny and demonize their subscribers, Armstrong said.

– Érica Carnevalli and Margaret Fleming contributed to this article.

Email tips to inquiries@cnbc.com



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