The head of the U.K.'s financial watchdog singled out an Instagram ad posted by Kim Kardashian, that promoted Ethereum Max, in a speech warning of the risks of "speculative" cryptocurrency tokens.
Charles Randell, chair of the U.K.'s Financial Conduct Authority, said in a speech Monday that Kardashian had asked her more than 250 million Instagram followers to "speculate on crypto tokens by 'joining the Ethereum Max Community'."
He added that the post "may have been the financial promotion with the single biggest audience reach in history."
CNBC contacted both Kardashian via one of her companies and Ethereum Max for comment but had not received any response at the time of writing.
Randell acknowledged that Kardashian had flagged that the post was an ad, in line with Instagram's rules.
"But she didn't have to disclose that Ethereum Max — not to be confused with Ethereum — was a speculative digital token created a month before by unknown developers — one of hundreds of such tokens that fill the crypto-exchanges," Randell said at the Cambridge International Symposium on Economic Crime.
Randell said that while he couldn't say if Ethereum Max specifically was a scam, he pointed out that "social media influencers are routinely paid by scammers to help them pump and dump new tokens on the back of pure speculation."
He added that some influencers had promoted tokens that turned out to not even exist.
Randell highlighted that there are no assets or real-world cash flows underpinning the value of cryptocurrencies, even in the case of more established tokens like bitcoin.
He explained that these tokens have only existed for "a few years," so investors haven't seen how they perform through a full market cycle.
In addition, Randell stressed that cryptocurrency tokens are not regulated by the FCA, nor are they covered by the U.K.'s Financial Services Compensation Scheme, which offers reimbursements for losses on certain investments or other financial products.
"If you buy them, you should be prepared to lose all your money," Randell stated.
Despite these risks, Randell said the hype around cryptocurrency "generates a powerful fear of missing out from some consumers."
"There is no shortage of stories of people who have lost savings by being lured into the cryptobubble with delusions of quick riches, sometimes after listening to their favourite influencers, ready to betray their fans' trust for a fee," he said.
He cited FCA research, published in June, which estimated that 2.3 million Britons currently invest in cryptocurrency, 14% of which used credit to buy these tokens.
Randell suggested that the FCA believed social media platforms like Instagram, Facebook, Twitter and TikTok should be required to adhere to legislation that stops firms unauthorized by the regulator from promoting advertisements for financial products.
The U.K. Treasury and the Bank Of England are currently looking into the creation of an official digital token, underpinned by the value of real currency, known as a "stablecoin."
El Salvador on Tuesday became the first country in the world to make bitcoin a legal currency, with President Nayib Bukele revealing that the country had bought nearly $21 million worth of the cryptocurrency in the lead-up to the new law taking effect.