Some people might be getting rich off of cryptocurrency, but the learning curve for newcomers is steep. You might be tempted to overlook the complexities and simply follow the advice of someone influential, like your favorite celebrity. But is that a smart move?
Celebrities Are Not Financial Advisors
This may seem obvious, but celebrities don't get paid to give financial advice. Rather, they're paid to promote products, and sometimes those products are, more or less, financial investments.
CNBC reported in January 2022 that media personality Kim Kardashian and professional boxer Floyd Mayweather were facing lawsuits over a particular cryptocurrency called EthereumMax. Both celebrities were paid large sums to promote EthereumMax to their fans. Later, EthereumMax dropped in value by around 97%, leading to investors accusing those celebrities of participating in a "pump-and-dump" scheme.
Pump-and-dump scammers recommend (or, more aptly, hype) an investment so that it grows in value before they themselves sell their investments for a high return. That "dumping" deflates the value for those fooled into the investment, causing them to lose money. It's an old trick that used to be done over the phone but is now even more prevalent thanks to the internet. And EthereumMax is far from the only crypto-based scam out there.
Do Real Research
It's worth noting that serious crypto enthusiasts never saw EthereumMax as a good investment or even a legitimate cryptocurrency. It was and still is known as, to use an industry term, a "shitcoin." But how can the average person watching Mayweather's fight or Kardashian's Instagram stories know that? It's that lack of knowledge on the subject that pump-and-dump scammers are counting on.
The most generous thing you could say about Kardashian and Mayweather is that they were ignorant of the alleged scheme. Influencers often claim to only promote products they truly believe in, but cryptocurrency is a complex technology, to say the least. With celebrities' busy lives, how realistic is it to expect them to have thoroughly researched the topic and developed informed perspectives on it?
That's why you should do independent research, and don't listen to anyone paid to recommend something to you. While influencers might claim to only promote products they believe in, it's a stretch to assume that they've thoroughly researched and gained real insight on any cryptocurrency before agreeing to promote it.
Similarly, you also shouldn't listen to someone who stands to make money from your investment. That includes people already invested in a cryptocurrency; you buying in will likely increase their return. Don't believe the hype.
Instead, listen to legitimate financial experts, and make sure you really understand how cryptocurrency works and the fraud surrounding it. There are risks involved in any investment, cryptocurrency included, and you should make yourself aware of what those risks are before making any decisions.