A Blog About FTC regulations and happenings
Social Media’s Hesitation to Promote Cryptocurrencies Explained
In a paradox of sorts, cryptocurrency’s continued survival may hinge on its submission to greater regulatory oversight. Such a notion is paradoxical in the sense that cryptocurrency’s origins can be traced to a “stick it to the man” mentality in which currency is decentralized and not tied to any one governmental body. Thus, submitting to regulatory oversight seems anathema to cryptocurrency’s credo. That is, until a few bad actors poison the well. Consider the following recent examples.
In one instance last week, a company that appeared to be raising money to launch a cryptocurrency for labeling fruit and vegetables disappeared overnight. In that span of time, the company’s entire website was replaced with landing page that displayed only the word “penis.” Fortunately for investors, the company only had raised around $11 at the time of its disappearance. Earlier, an anonymous developer had launched “PonziCoin.” Despite the fact that this cryptocurrency explicitly purported to be a pyramid scheme, and the fact that its site was filled with tongue-in-cheek commentary on the wider cryptocurrency sector, PonziCoin sold in large quantities. Such large quantities, in fact, that the developer was forced to shut down direct sales “because this was a joke.” These sorts of disreputable actors are so prevalent, in fact, that a website used to track cryptocurrency scams reports that most cryptocurrency offerings pages are fraudulent.
In the wake of incidents such as these, Facebook announced a new policy last week that bans all ads that “promote financial products and services that are frequently associated with misleading or deceptive practices, such as binary options, initial coin offerings and cryptocurrency.” The policy means that no advertiser – even those that operate legitimate, legal businesses – may promote cryptocurrencies like bitcoin, initial coin offerings (“ICOs”), or binary options.
Facebook’s reluctance to act as arbiter of credible cryptocurrency schemes is likely tied to a delay in any decisive action from most regulatory agencies. Such regulation would not only boost Facebook’s confidence, but also consumers’ confidence, in digital currency. A few agencies have haltingly answered the call for greater regulation. The U.S. Securities and Exchange Commission (“SEC”), for instance, has made cryptocurrency regulation a priority, as evidenced by remarks from its chair and a recent enforcement action. SEC Chair Jay Clayton said in January, “I have instructed the SEC staff to be on high alert for approaches to ICOs that may be contrary to the spirit of our securities laws and the professional obligations of the U.S. securities bar.” Moreover, the SEC said last week that it had seized the assets of a firm that claimed to have raised $600 million in its ICO scam.
As other regulatory agencies dither, however, cryptocurrencies wither. Indeed, the effect of Facebook’s ban was felt almost immediately. Bitcoin, the world’s largest cryptocurrency, fell 11% last Thursday to its lowest valuation since November. Bitcoin’s drop that day to as low as $9,022 on the Luxembourg-based Bitstamp exchange left the cryptocurrency trading at less than half the peak price of almost $20,000 it reached in December. Ripple, the third-largest cryptocurrency by market value, and BitCoin Cash also saw declines in the double digits in a 24-hour period following Facebook’s cryptocurrency advertising ban, according to Coinmarketcap.com, which tracks the industry.
Take heart, however, cryptocurrency fans; there is a silver lining. Once regulations are in place (as much as they can be for such a decentralized system as cryptocurrency), Facebook likely will allow cryptocurrency ads to return to users’ timelines. In fact, Facebook’s Product Management Director Rob Leathern promised that the social networking staple would “revisit” its ban in the future. Further, Facebook CEO Mark Zuckerberg himself expressed a desire to study cryptocurrency deeply in 2018. His comment that cryptocurrencies “take power from centralized systems and put it back into people’s hands” reveals a somewhat positive view on cryptocurrencies and how the company could “best used them in [its] services.”