Top social media influencers like the world’s richest man, Elon Musk and Twitter founder, Jack Dorsey have been flayed for promoting cryptos. The IMF says the risk associated with cryptos is huge as it presents an opportunity for money laundering and terrorism financing. Others said Bitcoin trading is worse than the Ponzi scheme which has no financial base as it is not dependent on any solid investment.
The International Monetary Fund (IMF) is concerned about the growth of cryptocurrency around the world, especially as it is a budding market and is growing at such a great speed that is making it hard for control to catch up with it. It is estimated that the total market value of all cryptocurrencies $1 trillion as of September 2021, data from IMF shows.
A Deputy Division Chief at the IMF, Evan Papageorgiou told CNBC that the crypto ecosystem has grown immensely. He said the process reveals a remarkable strength and added that there has been some stress tests along the way.
IMF said that people and financial institutions trading on these cryptos lack powerful working and risk practices that could shield them from shock in case of any misfortune.
It says the greatest danger of crypto is that it lacks adequate revelation and leadership and says there are gaps for money laundering and terrorism financing.
Crypto and influencers The UK’s Financial Conduct Authority (FCA), warns about the connection between social media and investment in cryptos. Charles Randell, chairman of FCA said fraudsters use social media buffs to help them pump and dump new tokens based on speculations. He said some influencers promote coins that are non-existent.
Randell said: “We haven’t seen what will happen over a full financial cycle. We simply don’t know when or how this story will end, but – as with any new speculation – it may not end well.”
Recall that earlier this year, Kim Kardashian, a celebrity with more than 200 million followers on Instagram was paid to promote a crypto token on her account. Analysts stressed how not much is known about the owners of Ethereummax, the crypto she promoted. Other social media users, like Tesla owner, Elon Musk and Twitter founder, Jack Dorsey with huge amounts of followers on social media, known as influencers, have also advertised crypto assets on their accounts.
Jack Dorsey and rap star, Jay Z invested about 500 bitcoin in an endowment fund initially in Africa and India. Standard operating procedure says another concern is that young people are very curious about this market and often make their first-ever investments in cryptocurrencies, using loans and credit cards to do so. According to details published by the FCA in June, about 2.3 million people in the United Kingdom hold cryptocurrencies. 14 per cent of them purchase them with and 12 per cent of them think that they will be protected by the FCA if it goes wrong. But the FCA has said it will not protect them.
Bitcoin worse than Ponzi scheme
In an opinion article published by the Financial Times, McCauley pointed out that comparing Bitcoin to the Ponzi scheme is an understatement because both do not have the same endgame and constitute a ‘deeply negative-sum.’ The scholar recommended that investors who opt to purchase Bitcoin are not guided by the goal of generating an income, but it is a zero-coupon for long-term returns as it promises nothing.