TThe US Federal Trade Commission (FTC) on October 26 sent what is known as a "Notice of Criminal Infringement" to more than 1000 companies, including crypto exchanges Blockchain, Gemini, Bixo based in the UK and other fintech and cryptocurrency firms. The notices, which warn companies not to overstate the earning potential investment or business opportunities, they were also sent to a host of job platforms, multi-level marketing (MLM) companies, and franchise companies, all of which can sometimes look like pyramid schemes of exploitation and often leave it to the prospective entrepreneurs feeling cheated.
The agency makes clear that the notices are in no way indicative of misconduct on the part of companies. Instead, the regulator says companies are now "aware that if they mislead or mislead consumers about potential earnings, the FTC will not hesitate to use its authority to target them with large civil penalties." At worst, it seems plausible that crypto exchanges have made what the FTC considers overly optimistic statements about the growth potential or safety of speculative investment in cryptocurrencies, and the advisory is a warning to cool down a bit. planes.
Unfortunately, that has left exchanges clustered with some companies that I would say are much more exploitative. The “Gig” platforms that also received warnings from the FTC included Amazon and Amazon Web Services (with their Mechanical Turk and gig delivery systems), as well as Fiverr, Postmates, Upwork and Uber. Research has shown that these jobs often amount to working for below the minimum wage.
The list also includes MLMs with names like Candle Divas, Candy Wardrobe and Herbalife. These companies offer "business opportunities" that often require huge start-up costs that make them, in effect, insider enrichment schemes. The dynamic was recently recounted in the documentary "LuLaRich," about MLM LuLaRoe clothing (which also received a warning from the FTC yesterday). MLMs remain legal, in part thanks to the political influence of people like the Trump administration's Secretary of Education. Betsy DeVos.
Finally, the list includes many franchise operations. These too are sometimes twisted into something a lot like MLM, with large upfront licensing fees that generate revenue for a parent company, but leave franchisees in a pot. I highly recommend the in-depth review of franchises as a temporary solution to labor legislation for the podcast "The uncertain hour".
As much as we hate to see crypto exchanges grouped together with such incomplete categories, there are important takeaways. First and simplest, the listing should be taken seriously as an index of how regulators still often view cryptocurrencies - as a den of scammers looking to fool ordinary people. As genuinely exciting as crypto is right now, it's worth considering that context before, for example, hitting "send" on a silly tweet about how Bitcoin is going to be worth a million dollars a coin by 2022. A bit Moderation could help the industry win a better deal from regulators.
The second conclusion is more complex and has to do with the economic context for the growth of cryptocurrencies. The FTC notes in its announcement that “as the [coronavirus] The pandemic has left many people in dire financial straits, money-making pitches have proliferated and gained special attention ...
"Americans are bombarded with offers that often turn out to be less than advertised."
This is actually downplaying it: The explosion of MLM and gig work dates back to the aftermath of the Great Recession, when good jobs became much, much scarcer. Both models often exploit the despair brought on by unemployment or the dream of corporate independence held by many workers who see themselves as miserable wage slaves.
While cryptocurrency is a real and substantial innovation, the truth is that much of the investment in cryptocurrencies is driven by the same economic context. Over the years, I've seen some really troubling behaviors (like mortgaging houses for leverage) from people hoping to get rich quick on cryptocurrencies and escape their economic straitjackets.
Obviously, that has worked for many in the short term, but many cryptocurrency prices (such as the prices of many stocks at the moment) are still well above what the actual demand from users justifies. That means they remain speculative and risky, especially for smaller retail investors who can't cope with recessions or bad bets. Long-term faith in the industry will benefit from clearly communicating the exciting potential of these new technologies, but also clearly exposing their risks as investments.
Points of view and opinions expressed in this document are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
