Reality check: Why Facebook’s crypto ad ban won’t affect cryptocurrencies or ICOs

If you're reading the headlines, the bitcoin bubble and crypto craze are having a terrible, horrible, no good, very bad week. On Tuesday Facebook announced it was going to ban ads for coin offerings and crypto couching it as a move to cut down on scams. Within the 24 hours around the announcement, the U.S. Commodity Futures Trading Commission subpoenaed Bitfinex and Tether, the Securities and Exchange Commission halted an ICO by AriseBank, and South Korea said it found $600 million tied to crypto-related crime. But at the same time, stock trading app Robinhood announced the launch of commission-free trading of 16 cryptocurrencies on its platform later this month and Square, which had recently made bitcoin buying and selling available to a select number of Square Cash users, expanded the service to its entire user base Wednesday. The fact is that for anyone that’s serious about their crypto company or their proposed ICO, Facebook ads don't really matter. The removal of advertising from Facebook will certainly do something to slow these schemes down but there are other ways they’ll be able to get their message out; through Telegram groups — some by invitation only — Internet chat rooms, Reddit. Facebook advertising is clearly just about getting mindshare, said Sid Kalla, co-founder of Turing Group. “Less technically serious projects might raise less money and thats probably good for the space,” he said. New projects without strong technical merit are coming up and raising a lot of money.” At most, “this would affect regular people that want to invest in ICOs without doing their research. Bitcoin’s value in lieu of the advertising that goes with it has nothing to do with Facebook ads. That’s true of most established cryptocurrencies as well.” That’s the unfortunate situation for active and serious participants and observers of the ecosystem, said Jalak Jobanputra, founding partner at FuturePerfect Ventures. For several years they’ve developed their various platforms and business models and are raising from trusted advisors and investors, at least initially. Now they’re suffering from the recklessness and misguidedness of the uninformed majority that see crypto as a get-rich-quick scheme. Dealing with unregulated assets and an easy way to make money is a constantly evolving challenge, she said. Like in venture capital, many of the most attractive teams and technology companies need to go to great lengths to market what they do and introduce a token offering later, once the platform is more developed and there’s less risk to the average investor. “I get 20 ICO pitches in my inbox everyday,” she said. “There’s allocation for marketing and that’s been an avenue where they just blanket the web and social networks and certainly use them excessively for the marketing of these ICOs.” But much in the same way Google banned payday lending advertisers, who found other avenues to promote their products, Facebook’s ban will have little to no effect on ICOs, said Ryan Gilbert, a principal at Propel Ventures. Almost two years ago, Google banned advertisements for payday loans and similarly predatory loan products from its search results, claiming it didn't want to lending practices harmful to consumers. It was a massive opportunity for entrepreneurs because of the low cost of acquisition through Google, which made a lot of money initially promoting them. Facebook could be taking a similar position now: showing it takes its role as a platform operator seriously by at least appearing to be more responsible for what’s broadcasted on its network, particularly in the context of a fake news world and the company’s role in the electoral environment. Facebook’s decision ultimately doesn't change much for bitcoin and other cryptocurrencies, and probably makes the ICO environment, which has by anyone’s standards gotten out of control, a little healthier, say experts. “ICOs and crypto generally have benefited from several years straight of non-stop, positive, enthusiastic and frankly somewhat overblown advertising by those who have adhered to it and those who have decided to adopt and use it,” said Preston Byrne, a fellow of the Adam Smith Institute. When a cryptocurrency finds a new investor or buyer, the tendency has been for that buyer to immediately acquire a vested interest in getting other people to also become buyers, to guarantee that person’s investment return. Layer upon layer of users buy into the system and evangelize the cryptocurrency or the ICO. “As a result we have a really quick sales pitch but almost no criticism pushing back against this,” Byrne said. “What we don't have is a consistent fact-checking function that can enforce some degree of proof and typical types of accountability we see in public markets or securities. It won’t put much of a dent into ICOs generally. What will are some of the more successful ICO promotors winding up behind bars and wearing orange jumpsuits. But we haven't seen that yet.” Perhaps most interestingly, there are rumors, said Gilbert, that Facebook is thinking about distributed ledgers, cryptocurrencies and blockchain and potentially gunning to incorporate one or some of the technology into the business. “They have the crypto ban in place so they can learn and understand exactly whats going on, then they’ll come back with some type of vetting process advertisers will have to go through to prove they’re legitimate,” he said, perhaps requiring advertisers to identify themselves personally to show who they are, disclose physical addresses and investors are and maybe even provide Facebook with some information about their business model. “That will at least allow Facebook to know who advertisers are and that they're working with legitimate parties.”