Good question. Crypto companies try to entice new customers with flashy marketing. Sometimes, the offers sound far too good to be true, promising outsized returns or low to no investment risk.
Here’s a recent example you may have seen the headlines about: The collapse of Alameda Research, a crypto trading firm, and its affiliate FTX, one of the world’s largest cryptocurrency exchanges, in November 2022. I won’t go into it too much—the story is still developing—but recent reporting by crypto news site The Block revealed that back in 2018, Alameda Research allegedly told potential investors that it could provide a high return on investment (ROI) with “no risk” and “no downside.”
Alameda Research and FTX are in the headlines today, but let’s not forget BitConnect, the crypto platform that paraded impossibly high ROI in its marketing materials while claiming no risks. In February 2022, BitConnect’s founder was indicted for orchestrating a global Ponzi scheme that allegedly took USD$2.4 billion of investors’ money. In September, the platform’s North American promoter was sentenced to 38 months in prison for his role in BitConnect, which the U.S. Department of Justice described as “a massive fraudulent cryptocurrency scheme.”
It is alarming that companies can mislead people as these two did. However, learning about the rules around crypto marketing can help investors find reputable service providers.
What can crypto advertising say in Canada?
In Canada, securities regulators have issued guidance for how crypto trading platforms (CTPs) should advertise and market themselves, including on social media.
For example, CTPs shouldn’t make statements they cannot back up with evidence; they should avoid calling themselves a crypto “exchange” or “marketplace” unless they qualify under applicable securities legislation or are exempted from such requirements; and they should avoid “gambling-style” promotions (like contests and time-limited offers), which “may inappropriately encourage investors to engage in excessively risky trading, taking on risks that they would normally avoid.”
Let me give you an example of how crypto marketing works at CoinSmart, which is a regulated cryptocurrency exchange that’s compliant with the Ontario Securities Commission. In our marketing, we can tell people to come to our website. We can offer discounts on deposits. We can even give new customers a small amount of bitcoin if they deposit a minimum amount. However, we can’t directly ask or tell them to buy crypto coins.
So, judging solely from marketing messages, how can you determine whether or not the company advertising is legitimate? Here are a few general tips: