What a difference a few months makes for the cryptocurrency market. Last year, virtual currencies were on top of the world. During the year, the aggregate crypto market cap soared by nearly $600 billion, racking up an increase of better than 3,300%. It was quite possibly the greatest year in history for a single asset class.
This year, though, there have been multiple speed bumps for digital currencies. After hitting an all-time market cap high of $835 billion on Jan. 7, virtual currencies plunged as low as $274 billion this past weekend. That's a loss of two-thirds of their value in just over two months, and it's certainly enough to give unprepared investors whiplash.
A major concern has been an increasing amount of regulation in key markets. The perceived anonymity and unregulated nature of crypto transactions has often been a selling point of this new asset class. However, countries like South Korea -- the South Korean won is behind only the U.S. dollar in global bitcoin trading volume -- have recently stepped up regulations surrounding crypto trading. For instance, South Korea introduced new regulations at the end of the January requiring that banks verify the identity of investors prior to linking their bank accounts to cryptocurrency exchanges. This is a fancy way of saying that South Korea is doing away with anonymous trading practices.
Twitter joins the cryptocurrency ad-banning party
But an even bigger recent worry has been the banning of any ads related to cryptocurrencies, initial coin offerings (ICOs), crypto wallets, and/or cryptocurrency trading advice on key social media platforms. This began with a Facebook (NASDAQ:FB) blog announcement on Jan. 30 from the company's product management editor Rob Leathern, saying it would be banning "ads that promote financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency."
This banning was followed not long thereafter by Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) subsidiary Google. Said Scott Spencer, Google's director of sustainable ads on March 14, "We don't have a crystal ball to know where the future is going to go with cryptocurrencies, but we've seen enough consumer harm or potential for consumer harm that it's an area that we want to approach with extreme caution." By June 2018, Alphabet will have banned crypto-related ads, along with ICOs, crypto wallets, and trading advice, on its ad platforms.
The latest shoe to drop, according to Sky News, will be Twitter (NYSE:TWTR). The report suggests that Twitter will roll out a new advertising policy within the next two weeks that'll block ads associated with crypto wallets, exchanges, and ICOs, with very few exceptions. Such a move shouldn't surprise anyone considering that Twitter has been recently cracking down on cryptocurrency scam accounts.
Nearly all of the world's top social sites now ban cryptocurrency-related ads
The issue is that it's not just brand-name companies that are banning crypto-related content; these are some of the world's largest social media sites, and thusly the greatest source of impressions on the internet. In fact, Facebook, Alphabet, and Twitter all effectively banning crypto content removes six of the top 11 social media sites by monthly active users (MAU) from the equation. This includes, according to Statista data from January:
- Facebook: 2.13 billion MAU
- YouTube: 1.5 billion MAU
- WhatsApp: 1.3 billion MAU
- Facebook Messenger: 1.3 billion MAU
- Instagram: 800 million MAU
- Twitter: 330 million MAU
Facebook's social sites, which includes its namesake website and Messenger, WhatsApp, and Instagram, rank a respective first, third, fourth, and seventh in terms of MAU. Alphabet, which is an advertising kingpin, controls YouTube, the second-most popular platform by MAU. Lastly, Twitter comes in 11th in total MAU.
There are other popular social platforms overseas that have banned crypto ads, too. China, which took steps to ban ICOs and cryptocurrency exchanges last year, has recently hardened its stance on crypto ads appearing on the internet. According to a CoinTelegraph report from early February, crypto ads are no longer appearing on Weibo. Microblogging site Sina Weibo, owned by SINA, ranks 10th in MAU at 376 million, according to Statista.
Also, China's Tencent Holdings (NASDAQOTH:TCEHY), which controls WeChat, the fifth-most popular social site by MAU at 980 million, as well as QQ and QZone, the sixth- and ninth-most popular sites based on MAU, blocked cryptocurrency trading and ads. Said Tencent, "[We] have always insisted on the principle of not providing relevant services for illegal financial activities such as the issuance of ICO tokens and virtual currency transactions." Considering how China has cracked down on everything related to cryptocurrencies, it's not surprising to see Tencent following suit.
All that's left among the top 11 is Oath-owned Tumblr, with an estimated 794 million monthly active users.
This is for cryptocurrency investors' own good
In the short run, this advertising crackdown is probably going to be felt in the cryptocurrency markets. Losing access to so many of the world's most popular social media sites in a span of just weeks is going to sting. In particular, the cryptocurrency movement has relied on cash inflows to drive market caps higher. Without access to these key impressions, it's possible we could see virtual currency valuations fall even more than they already have.
But the blunt truth of the matter is that these bans are desperately needed to aid in the process of weeding out cryptocurrencies, ICOs, and advertisers that may not be operating in the best interests of prospective investors. The fact that this market is largely unregulated made it relatively easy for advertisers to make outrageous claims in order to attract new money. Removing these impressions from mainstream social media sites should allow time for regulators to formulate a plan to properly oversee this new asset class, as well as for the virtual currency market to weed out the possible frauds.
In short, it allows time for a foundation to be built in this otherwise nascent trading market. That's a good thing for cryptocurrencies in the long term if they're to have any staying power.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Facebook, Tencent Holdings, and Twitter. The Motley Fool recommends Sina. The Motley Fool has a disclosure policy.