Earlier this week the story broke that John McAfee, digital millionaire and creator of one of the most notorious virus protection software, has been receiving over 100,000 USD per mention to promote various cryptocurrencies via his Twitter account. While it had long been suspected that McAfee’s supposed analytically-based recommendations had come at a price, the details of the transaction were murky and held to speculation. McAfee’s sudden transparency is being billed as a process of offering his expert insight in the market of digital products and innovative technology. Rather than a source of shameless kick backs, McAfee’s recommendations are supposed to be based in researched analysis. However, many in the industry have been outraged by the asking price, and see the move as nothing more than blatant market manipulation.
.@noBScrypto and I started the No BS Crypto Telegram group this week to be a safe haven from the scams, pumps and shills that #crypto has become littered with. We're at 5.5k members and climbing. Come talk crypto strategy. https://t.co/IISY5eCKAM
— John McAfee (@officialmcafee) April 6, 2018
Does McAfee and his process of tweeting favored currencies hold value to the market of cryptocurrency? Or is he contributing to overvaluation and empty pump schemes?
Filling a Void in a Confusing Market
In addition to the novelty of the technology, cryptocurrency represents a marketplace that few have experienced before in the history of finance and investing. Cryptocurrency has a number of features that distinguish it from the traditional stock market. The trading hours are omnipotent, going 24 hours a day, 7 days a week. That means traders around the globe are able to contribute to price speculation and theoretically provide a clearer value to the currencies with more adaptive response to news affecting the market. However, it also lends itself to more impulsive investor behavior, with amateur and day traders alike left beholden to the rapid price changes at all hours of the day.Crypto is also highly volatile and has attracted a large crop of myopic investors trying to become the next overnight millionaire. Finally, the lack of regulation—which also makes for one of cryptos greatest strengths—leaves investors and hobbyists at risk of financial ruin by market manipulators. Case and point: the BitGrail Hack fiasco, which tanked the once promising currency of NANO into near-industry obscurity.
Which opens the door for the presence of a figure like John McAfee. Some investors are perplexed why anyone would hold stock in McAfee’s tweets in the first place or consider his advice as sound financial wisdom. However, for all his controversy, McAfee appeals to a mass audience looking for expertise in the industry of cryptocurrency. McAfee has been a bold figure and headline grabber since he first proposed Bitcoin reaching 1 million USD by 2020—or else he would eat his own genitalia on national television. While that severe degree of sensationalism casts doubt on his credibility, he still holds a position of authority in an industry filled with charlatans and misdirection. Investors, both seasoned and amateur alike, are looking for voices of reason and veteran wisdom dispensers to help guide them in their financial decision making. The stock market has the likes of Warren Buffett and a litany of professional news and analysis outlets to distill information to the masses. Crypto is largely made up of sensationalized stories and enthusiast press, with more traditional media platforms (such as CNN and CNBC) taking an overwhelmingly negative slant against the technology they don’t understand.
Market Volatility and Unpredictable Outcomes
In that respect, McAfee is simply filling a void left in the absence of otherwise trusted advisers. However, there is a huge disconnect between advice that can be given on the performance of a particular asset, and how that asset responds. Financial markets and the investing behaviors that influence them are inherently difficult to predict. The most recent iteration of CoinTelegraph’s popular Price Analysis quotes two Wall Street level analysts on the price of Bitcoin by year’s end: one with a bullish prediction of 25000 USD, the other valuing BTC at 22-45 billion USD total market cap, or ~1700 USD per coin. The fact that two separate groups can reach such wildly different conclusions shows the unknown nature of both crypto and financial predictions. Even surefire trends can reverse in the span of days leading bears to giveaway to bulls and vice versa.
As to whether actions like McAfee’s paid Tweet promotions are helping or hurting cryptocurrency, it amounts to this: actions that are purposefully done to manipulate markets (i.e. falsely influencing investors to buy an asset at a certain price) are bad for industries. They create false valuations and investor resentment. It can also be confusing to new investors to the industry or those looking to dive into the cryptomarkets with little research (an action that is obviously not advised). It’s one thing to hear about the benefits of Bitcoin and potential appreciative profit to be made around a water cooler at work, it’s another when a new investor sees a celebrity figure like McAfee endorsing currencies that could be described as niche or at least off the radar of most investors. There is value in having more figures that take the analysis of the market seriously and attempt to disseminate that knowledge to their user base. However, there is always going to be a murky line between whether these recommendations represent long-terms strong buys in terms of valuation, or if they are seeking to profit off the short term movement in price in the wake of the Tweet. Even if McAfee is giving his legitimate opinion on currencies he finds to hold value for investors or the industry of crypto, it’s hard to tell whether the actions amount to pseudo-insider trading, with coin prices leaping upon news of the Tweet before typically experiencing selloffs.
At the end of the day, the only thing ultimately at risk is the reputation of McAfee. Investors always have to be held accountable for their financial decision and who they are willing to take advice from. Given the inherent unpredictable nature of the cryptomarketplace, anyone distributing advice is more or less chalking up educated guesses that could lead to positive outcomes for investors over time. But, as a whole, the industry should shy away from attempts by central figures of authority–which is should be ingrained in the community of cryptocurrency to begin with–that are inspiring outcomes similar to market manipulation.