Coin Shilling May Trouble Influencers

The European Union is close to finalizing its MiCA bill that sets forth, among other things, the standards of transparency that apply to social media influencers promoting cryptocurrency projects.

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The EU’s Markets in Crypto Assets (MiCA) bill was passed on October 10, as the European Parliament Committee on Economic and Monetary Affairs (ECON) lawmakers voted 28 to 1 in favor of the new legislation. Now, the bill awaits a vote at the European Parliament plenary session and is expected to come into effect in 2024.

While the bill is mostly focused on stablecoins and anti-money laundering regulations, it also devoted a great deal of attention to consumer protection rules and the prevention of market abuse. And this is where things get complicated for crypto influencers and coin shillers, who have long enjoyed lucrative returns from crypto promotions in absence of clear regulation.

Article 80 of a 380-page document defines what behavior can be considered as market manipulation. Under the new legislation, the EU may take action against those who comment on crypto assets on social media but fail to disclose their conflict of interest.

According to one of the clauses of article 80, “taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a crypto-asset, while having previously taken positions on that crypto-asset, and profiting subsequently from the impact of the opinions voiced on the price of that crypto-asset, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way.”

The MiCA print was met with mixed reactions from the crypto community, as many found the new rules to be vague and unworkable, wondering whether every bullish tweet on Bitcoin can be deemed a crime now. Others, however, cheered on the regulators to put an end to coin shilling on social media, especially Twitter, which is a platform of choice for the crypto industry.

In crypto speak, shilling refers to the highly lucrative business of paid crypto promotions through implicit advertising. The goal of the shilling is usually to generate social media buzz around a specific cryptocurrency. Needless to say, the promoted project often turns out to be an outright pump-and-dump scheme — a form of market manipulation scammers use to artificially inflate the price of an asset and then sell on top, using unsuspecting retail investors as exit liquidity.

In April 2022, an independent on-chain sleuth ZachXBT leaked the “shill price list” of more than a hundred celebrities and crypto influencers who charge money for promoting crypto projects, revealing the obscure world of paid coin shilling. The spreadsheet contained several verified accounts, including Lindsay Lohan, who charges $25,000 per shill tweet and a shy $20,000 for a retweet.

In traditional financial markets, shilling is illegal, plus there are fewer opportunities to do so, as there are not so many people whose endorsement can influence the price of, let’s say, an Apple stock. In crypto, however, everything is completely different — the absence of clear regulations and the low liquidity of many altcoins create plenty of opportunities for influencers who do not concern themselves with the work ethics or well-being of their followers.

Lately, however, regulators seem to pay more attention to crypto influencers. In October, SEC charged Kim Kardashian for promoting the EMAX token on her Instagram. Kardashian failed to disclose that she was paid $250,000 to shill a dubious crypto project, but agreed to pay $1.26 million to settle charges, without admitting or denying the regulator’s findings.

“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 Chair Gary Gensler commented in a press release.

The MiCA bill now must be voted on at a European Parliament plenary session, most likely in November. Unless amendments are made, the new legislation will be signed into law during December’s plenary session. After that, the crypto industry will be given 18 months to prepare for the new regulatory framework, so the bill will likely come into effect in 2024.