The ‘Elon Effect’ shows how opinion leaders shape the FinTech market

The power that influencers have in affecting public perception and therefore causing alterations in the value of a product, service, asset or currency has increased to the point where they can crash or uplift entire markets with their content and takes. 

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 has a lot of power over the crypto markets, and several people in the cryptocurrency world and traditional finance have accused Musk of manipulating the cryptocurrency market with just a few tweets.

Other popular influencers could cause similar effects through social media posts or promotional videos. But why do they have so much power? Well, it’s all down to the power of influencer marketing; research shows that approximately 80% of consumers are more likely to buy products promoted by influencers instead of ads.

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

In the case of the crypto market, digital advertising has been partially irrelevant throughout the years due to multiple factors, the main one being that Google, Twitter and other social media platforms had banned crypto ads in the past. Therefore, promoting coins/tokens via influencers was the main marketing alternative for many cryptocurrency projects.

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

With these ongoing shady and unclear messages, he is just adding more fuel to speculations and all sorts of theories — which only worsens the current scenario for the cryptocurrency industry.

Why we shouldn’t follow advice from influencers

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

Even more, some of these influencers might not even have any familiarity or knowledge whatsoever about the product/asset/coin they’re promoting. Such was the case with reality TV star Kim Kardashian, who received $250,000 for promoting 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, it doesn’t mean that 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 a lot of people do not seem to ask themselves: Should we really buy something from a TV reality star who has never had anything to do with cryptocurrencies?

Another problem with influencers that needs to be mentioned is that a lot 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 violations.

The solution to these problems: Always DYOR — do your own research. It’s understandable that not everybody has the time to investigate a project or currency before investing in it, but it’s not reasonable to blindly follow advice from crypto influencers, either. Investors should take the time to personally check a potential investment instrument and find answers to the main questions that concern them.

The power opinion leaders have in today’s markets

Influencers have been heavily criticized for pumping or dumping cryptocurrencies in which 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, as well as taking a considerable percentage of their token supplies.

1/ Let’s review all the direct scams Bitboy has worked with in the past. Just in case you forgot here is the flyer with how much he charges. I received this a while back by posing as a project interested in a promotion. pic.twitter.com/FkC9HUDGsc

Popular crypto influencer Ben Armstrong, aka BitBoy Crypto, also admitted to receiving payments from crypto projects to promote them on his YouTube channel for years — which led many of his viewers to suffer considerable losses.

Love or hate influencers, they need to be regulated

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

Therefore, it seems sensible that countries and jurisdictions around the globe should lay out proper guidelines to regulate the level of influence that 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 face fines of up to 300,000 euros (just above $316,000).

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

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

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 here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.