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Kim Kardashian and other celebrities promise big profits with cryptocurrencies. New study says they mislead investors – DL News
- Cryptocurrency influencers only offer short-term gains, according to a new study.
- Investors who accumulate celebrity-endorsed coins lose in the long run.
- Researchers say celebrity endorsements mislead investors.
Cryptocurrency influencers like socialite Kim Kardashian promise a lot when they shill the next “1,000x coin” (market jargon for a token could offer parabolic gains for early entrants) but generally offer little in the way of long-term gains for investors.
That’s according to a research paper by four academics on the impact of social media influencers on the price trajectory of the cryptocurrencies they advertise to their online followers.
“Crypto-influencer tweets are initially associated with positive returns,” the study says. “However, these tweets are followed by significant negative returns over a longer horizon.”
Therefore, researchers concluded that crypto influences generate minimal long-term investment value and end up misleading investors.
The study by four researchers, including Kenneth J. Merkley, an accounting professor at Indiana University, examined 36,000 social media posts from 180 so-called major cryptocurrency influencers over a two-year period ending in December 2022, which makes the absence of memecoins in the literature unsurprising as they are a more recent phenomenon in the cryptocurrency industry.
Their study concluded that investors experience greater short-term gains when these influencers back small caps, which are crypto tokens with initially small market sizes, similar to penny stocks.
It’s not uncommon for project teams to pay for celebrity endorsements of their crypto tokens, a practice that carries regulatory risks, according to the study.
In fact, famous people like Kardashian and actress Lindsay Lohan have drawn criticism from the U.S. Securities and Exchange Commission for backing crypto projects in the past. Others like NFL star Tom Brady and comedian and writer Larry David might, too deal with legal problems for promoting the bankrupt cryptocurrency exchange FTX.
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Cash isn’t the only payment celebrities can accept in exchange for a crypto token endorsement. They can also agree to receive low- or no-cost allocations of tokens that they can offload onto the market once the price begins to rise.
The study says retail investors are often unaware of behind-the-scenes maneuvers or expect to be able to time their exit before the price collapses.
Memecoin
Although memecoins are absent from the study, the conclusions drawn may be valid, but there is a caveat: memecoins are a 54 billion dollars Crypto niche with market cap, according to CoinGecko.
Major memecoins like Dogecoin, Shiba Inu, and Pepe have produced huge gains for early adopters, and this helps fuel the “moonshot” promises peddled by crypto influencers when they roll out new projects to their fans.
But successful memecoins are the exception, not the rule. Not all memecoin launches end up getting a bid and reaching eight-figure market valuations. Indeed. for every viral memecoin, there are dozens of failed tokens that have left investors in the lurch.
But the allure of being an early investor in the next Dogecoin or Shiba Inu is enough to send investors flocking to the next memecoin launch.
Memecoins have dominated the market narrative this year. They are even experiencing a rebirth this week with the reemergence of meme phenomenon Keith Gill, better known as his online persona Roaring Kitty, a major player in the 2021 meme stock frenzy.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. He covers DeFi and technology. To share story tips or information, contact him at osato@dlnews.com.