NEW YORK (Reuters) – When cryptocurrency issuers want positive coverage for their virtual coins, they buy it.
Co-founder and CFO Alexander Thoma of Swiss Blockchain-Asset Rating Company Alethena, co-founder and President Pascal Marco Caversaccio, co-founder and CEO Markus Hartmann, CSO Benjamin Rickenbacher and co-founder and COO Tim Glaus poses for a photograph in their office in Bern, Switzerland November 12, 2018. Ruben Sprich / Handout via REUTERS
Self-proclaimed social media personalities Research houses accept payments in the cryptocurrencies they are analyzing. "Experts" rating will certainly be positive, for a price.
People in the cryptocurrency market and documents reviewed by Reuters.
Earlier this year, Ukrainian start-up Hacken was looking to promote his new money after raising $ 3 million online in late 2017. Chief Executive Dmytro Budorin and his team identified a list of almost 200 cryptocurrency social media personalities .
Hacken paid $ 7,500 for Christopher Greene, host of Alternative Media Television – a YouTube channel with more than 500,000 subscribers – to review its coin in a video, Budorin told Reuters. In the 25-minute video, published on June 22, Greene raved about Hacken's coin and business, describing it as a "huge market opportunity" with "potential 1,000x returns."
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Nowhere in the video – which has more than 92,000 views – is Hacken's payment to Greene mentioned. Merrill Lynch, Merrill Lynch, Merrill Lynch, Director of Public Relations at Merrill Lynch. There is no specific mention of Hacken, or any specific cryptocurrency issuers, paying him.
Greene did not respond to emails and phone messages from Reuters asking about his work for Hacken.
Hacken's coin was up 14 percent on the day to $ 1.54 per coin.
Some people paid attention. Carter Zurawel, a yoga instructor in Calgary, Canada, replied to Greene's tweet: "That Hacken video was great! Made me buy a couple hundred. "
The token's price has since fallen by more than 75 percent to 36 cents. Zurawel told Reuters on Twitter. He was not aware that he was video, but he shrugged off the poor performance of the currency. I will probably hold onto it because I strongly believe that the cryptocurrency market will rally in the future, "he told Reuters.
Budorin told Reuters he was "unethical." Video reviews "should be done with (a) sponsored tag or only for projects that (the) reviewer personally supports," he said.
Hacken's approach exemplifies to pay-for-play hype machine that churns out Few researchers and experts disclose their own holdings of digital assets.
The crypto bubble peaked last December: bitcoin, the largest cryptocurrency, is more than 80% from its high just above $ 20,000. The total value of all virtual coins is now about $ 121 billion, down from about $ 830 at the start of the year.
That has not stopped the hype machine humming.
REGULATORY GRAY AREA
So-called "influencer marketing" is common on social media, where celebrities and others tout anything from shoes to cars. Also common in these plugs is a lack of disclosure, which may mean the buyer is unaware of a conflict of interest. When it comes to cryptocurrencies, however, stricter rules may apply.
In July 2017, the U.S. Securities and Exchange Commission (SEC) published a report on its investigation into digital currencies and warned participants in the market that is "virtual coins or tokens may be securities and subject to the federal securities laws."
Fundraisers known as initial coin offerings (ICOs) on Nov. 1 last year. "Any celebrity or other individual who promotes the nature, scope, and amount of compensation received in exchange for the promotion."
Failure to do so is a violation of anti-touting provisions of the federal securities laws, and may be fraudulent, the SEC said.
The SEC has not issued determinations on which the cryptocurrencies it regards as securities. But the agency has been enforcing actions against companies that are connected to ICOs, which has been identified as unregistered securities offerings, and therefore subject to its regulation.
The SEC has not targeted outside the promoters of currency offerings. Its warning in November of 2017 – near the height of the crypto frenzy – alone has led to a "dramatic decline" in celebrity endorsements of ICOs, the SEC's co-director of enforcement, Stephanie Avakian, said in September. The SEC declined comment to Reuters for this story.
Nevertheless, hundreds of self-styled cryptocurrency experts have emerged over the past 18 months, and their activity has declined only slightly. There are now more than 2,000 cryptocurrencies vying for attention, all promising riches to investors. Vulnerability to hype and bad advice.
"The main reason why I know so many inexperienced individuals invest in bad crypto projects," said Larry Cermak, head of analysis at cryptocurrency research and news website The Block. Cermak said he does not own any cryptocurrencies and has never promoted any. "They are often fraudulent, intentionally misleading or conflicted."
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ICObench is one of the most popular websites listing and rating ICOs. Search for a specific crypto project and the word ICO, making it a key site for currency operators to appear on.
Ratings on the roughly 15-month-old website are generated by unpaid "experts" who passed the website's background check process, ICObench chief executive member Maxim Sharatsky told Reuters.
As of Nov. 14, ICObench had 361 experts who are overseen by the site's 34 employees based in Moscow, London and across Asia, he said. ICObench had 1.7 million visits to its website between mid-October and mid-November, Sharatsky told Reuters.
Cryptocurrency companies pay for 1 and 40 bitcoins to be featured in newsletters, at the top of the search results and elsewhere.
Seven ICObench experts told Reuters they have been approached by cryptocurrency companies or their public relations agents and offered money in exchange for a rating.
Tim Glaus, a co-founder of Alethena, a Swiss-based startup, told Reuters his firm was approached by multiple individuals who said they could order paid-for ratings from ICObench experts after Alethena listed its coin offering on ICObench. Markus Hartmann, another of Alethena's co-founders, wrote about the experience on the blog "What do you think of it?" .
Sharatsky told Reuters that ICObench does not sell ratings. When ICObench is informed that experts have been paid for ratings, he said, it investigates and takes the reviews if they are tainted.
"We have more than 16,000 ratings on our platform," Sharatsky said. "We have (had) accidents with sales (of) ratings, and it's very bad. It's a problem for me, for our platform and for all interested. "
Telegram messaging Telegram messaging Telegram messaging app from a user with the handle "Vagiz," Reuters.
He negotiated to pay $ 800 for two ICObench reviews and asked for the service. Less than 30 minutes later Vagiz messaged Hartmann on Telegram: "Done. There are two 5 * 🙂 "
Vagiz was referring to two-star ratings from ICObench experts Daniil Morozov and Anatoly Bordyugov, according to Alethena. These were the only five-star ratings that appeared after Vagiz.
Alethena said it paid Vagiz 1.16 ether – another cryptocurrency – for the service. Alethena sent Reuters screenshots of the reviews which have been removed.
A few days later Hartmann paid Vagiz an additional 0.56 ether for a third rating Jason Hung, according to the messages. "1 rate is done. Hung is from me, "Vagiz wrote, providing screenshots of Hung's ratings.
Morozov, the ICObench expert, told Reuters he did not take payment for the rating and did not know Vagiz. Bordyugov, the other ICObench expert, I did not respond to requests for comment. Ichbench, also told Reuters he did not take payment for the credit rating on Alethena and said he did not know Vagiz.
ICObench CEO Sharatsky told Reuters that after Hartmann wrote about his experiences on the medium, he and his staff investigated Alethena's claims against Morozov and Bordyugov and found that they both accepted money for positive ratings. As a result, ICObench stripped Morozov and Bordyugov of their expert status and took all of their ratings off the site, Sharatsky said. Hung's rating was paid for.
WALL STREET-STYLE RESEARCH
As cryptocurrencies move into the mainstream, some companies have started offering research in formats mimicking the style of the traditional Wall Street firms.
Spero Research, based in Sydney, Australia, publishes reports on cryptocurrency projects which are "very impartial" and "very independent," according to Henry Sit, one of Spero's co-founders. He compares the reviews to those written by traditional stock analysts.
Nevertheless, the research is commissioned and paid for directly by the projects that are being reviewed, Sit told Reuters. The company accepts payments in the project's currency, depending on "how good the project (is) and how much we like it personally," Sit said. "There is definitely a conflict there," he acknowledged. He added that I hope he will not change his opinion just because the cryptocurrency project has been reviewed disagrees with Spero's conclusions.
I hope the reports do have general disclosures. But they are not specific about the client whose project is being evaluated, and if so, how much.
"I hope this will happen to you", I said, "I hope that I will be able to buy from the side," said the disclosure on a cryptocurrency report published in August. "I hope members can hold cryptocurrency that are the subject of research and publication."
Sit would not say which I have been financed by their subjects.
Some investors cry foul at such quid-pro-quo research. "It should be outlawed," said Ric Edelman, head of the wealth management firm Edelman Financial Services and an investor in bitcoin and ether. "Until they're outlawed, the disclosure should be as prominent as the headline."
An array of "ICO agencies" has sprung up, as well. Crypto issuers active followers and followers on social media platforms such as Telegram, Reddit and Bitcointalk. Online chatter can attract investors, given the lack of conventional financial information available on cryptocurrencies.
Reuters contacted one such agency, TGE.company, to inquire about the services advertised on its website. An email received in response to the request of Reuters to a Telegram messaging account under the name of "Papa Karlo." That user sent a Reuters price list which said the agency could give 630 comments in a Telegram group at a rate of 45 comments a day for $ 800, payable in the digital currency tether. Reuters was not able to confirm the identity of Pope Karlo. The services offered were in line with a price list on the firm's website, under the words: "We create hype through complex solutions which increase community activity."
Pope Karlo shared with Reuters. Bitcointalk accounts on Bitcointalk, as well as on Reddit, at prices ranging from $ 950 to $ 2,900.
Telegram and Bitcointalk did not respond to Reuters' requests for comment.
Richard Foster, the UK-based co-founder of the cryptocurrency startup Security Token Network, said that in September he paid an individual $ 50 on the freegancer network to help grow his company's Telegram followership. The seller, going by the handle "heroic_anthony," assured Foster that the users would not be fake, according to messages seen by Reuters.
"And then within one minute there were like 1,000 people added," Foster told Reuters. "I went mad."
Foster said he complained to Fiverr and had the freelancer delete all the fake followers. Fiverr refunded Foster's money and told him by Reuters.
"The circumstances you've been violating our terms of service," Sam Katzen, a spokesman for Fiverr, told Reuters. "When we have been reported, we have been able to investigate and handle the situation appropriately." Katzen declined to disclose whether "heroic_anthony" had been banned from the site, or what exact terms of service had been violated. Fiverr's terms of service, posted on its website, forbid the sale of "illegal or fraudulent services."
PAY FOR ARTICLES
I want to be a writer for publishers mentioning their clients, or linking back to their clients' websites, based on interviews with four agencies and six email offers seen by Reuters. Prices range from as little as $ 100 to as much $ 10,000, according to interviews and messages.
A cryptocurrency data company showed Reuters an e-mail en Forbes.com for $ 2,500. The post, which could feature a company's name and website, could be delivered in six to eight weeks, the email promised. The email included a coupon for $ 500 discount.
Forbes.com said its editorial guidelines explicitly forbid contributors from receiving payments in exchange for stories. Forbes did not share its editorial guidelines with Reuters.
Earlier this month, Forbes removed a post by Harold Stark, originally published last year, which is referenced to cryptocurrency issuer, after Reuters inquired about it. In a statement to Reuters this month, Forbes said it had discovered in early 2018 that Stark violated its editorial guidelines. It is not clear if Stark accepted payments for his Forbes post. Stark did not respond to a request for comment on LinkedIn.
"We are terminating our relationship with him and we have removed all of his content from our site at that time," the statement said. "Two to a technical glitch, his priority content reappeared, but we have removed the content once again."
Reporting By Anna Irrera and Elizabeth Dilts in New York; Editing by Neal Templin and Bill Rigby