What All Businesses Can Learn From Recent Missteps In Crypto
Mar 21, 2023 by Eric D. Reicin, President & CEO, BBB National Programs
While business, according to the new Edelman Trust Barometer, continues to gain trust around the world, those operating in the cryptocurrency industry are facing some stiff trust headwinds.
Crypto is not just suffering due to the alleged malfeasance of Sam Bankman-Fried, but also due to the array of issues that the industry has brought upon itself in the past two years, particularly in the realm of social media.
While many associate the Securities and Exchange Commission (SEC) with regulating cryptocurrency in the U.S., the Federal Trade Commission (FTC) has an important role in enforcing consumer protection laws, requiring that all advertising be truthful and accurate and that influencers and spokespeople are transparent about when they are compensated for things like reviews or endorsements.
According to December 2022 reporting from Bloomberg and others, the FTC is probing several crypto firms over allegations their advertisements were deceptive or misleading. For example, cryptocurrency exchange FTX is charged with investors making false advertising claims. And in November, the National Advertising Division of my organization, BBB National Programs, brought a case against a well-known financial services platform for misleading advertising, suggesting that consumers can achieve significant wealth with minimum investment.
The Consumer Financial Protection Bureau (CFPB) is also placing cryptocurrency under a microscope, with CFPB director Rohit Chopra warning that Americans are "reporting transaction problems, frozen accounts and lost savings when it comes to crypto-assets.” Among others, the Commodity Futures Trading Commission (CFTC), Department of Justice (DOJ), Federal Deposit Insurance Corporation (FDIC), and a series of state agencies have also engaged in these matters with varying success. States across the country have passed or are actively considering cryptocurrency laws and regulations, and this first quarter of the year is always a period when laws passed in one state tend to be noticed—and sometimes replicated—by others.
Whether it is the FTC, SEC, CFPB, CFTC, or state regulatory agencies leading enforcement, or industry-self regulation as recommended by the University of Colorado Boulder’s Eric Alston, the lessons learned from the crypto crisis can apply to business across the board. For instance, it is never a good idea to publish guarantees that your business cannot fulfill. And when it comes to marketing materials, faking it until you make it is not okay. All advertising claims must be factually supported with evidence.
In addition, the government squeeze on crypto highlights a few other important advertising best practices for business in general:
- Always proceed with caution in your advertising practices.
- If you compensate an influencer or endorser, disclose it.
- Do not deceive stakeholders about potential earnings.
- Do not suppress negative reviews.
- Make sure you can back up your claims—expressed or implied—with evidence.
While the crypto market itself is quite revolutionary, its challenges in introducing the concept to consumers are not new. Emerging markets have always been tested with balancing innovation and excitement and the need for consumer protection. When a product or service first comes to market, thoughtful education for consumers on the benefits and great value of that new thing is key.
Often, those best positioned to educate a consumer are the businesses in the given industry. But for that education to be meaningful, businesses must start with a keen sense of self-awareness, followed by a willingness to turn that awareness into responsible action, embodied by truthful, transparent marketing.
So when the next innovation emerges in your business or nonprofit field, take steps to generate excitement. But as the recent cryptocurrency confusion and crackdowns have taught us, avoid pitfalls by making advertising claims that you can support with evidence.
Originally published in Forbes