The importance of controlling cryptocurrency advertising

The importance of controlling cryptocurrency advertising

It is no secret that the crypto assets sector has developed enormously worldwide and, more specifically, that of cryptocurrencies. More and more business models are being developed around them, and sometimes lack of knowledge means that users, especially non-professionals, carry out actions through them under conditions and with risks that are unknown to them.

Why is it necessary to control cryptocurrency advertising?

Given the growing importance of crypto assets in general in our financial system, both the legislator and the CNMV have seen fit to take a stance on the matter.

Firstly, Royal Decree-Law 5/2021, of 12 March, on extraordinary measures to support business solvency in response to the COVID-19 pandemic, introduced a new article 240 bis in the Securities Market Law (LMV) to reinforce the legal framework for protecting citizens regarding the advertising of new financial instruments and assets in the digital sphere. This inclusion grants the CNMV certain powers that allow it to subject the advertising of crypto assets to administrative control, as well as to develop the objective and subjective scope, mechanisms, and procedures necessary to carry out this advertising supervision by means of a Circular.

Main risks associated with cryptocurrency mining

Cryptocurrency mining is the process in which miners use computing power (hashing) to process transactions and obtain rewards, in this case cryptocurrencies. In other words, it is the process of adding new transaction records as blocks to the blockchain.

However, mining cryptocurrencies involves several risks:

• Power consumption: this risk is directly associated with the cost of energy, as cryptocurrency mining requires a lot of power in the devices and, consequently, high consumption. To mitigate this, the technique of overclocking could be used (used to increase the clock frequency of an electronic component, making it higher than that offered by the manufacturer as standard. Clock frequency is the computer’s hertz, or cycles per second, and indicates the speed at which a computer performs its most basic operations), or the use of alternative energy sources, such as solar panels.

• Implementation of viruses: as in practically any computer system, crypto asset mining involves the risk of a third party implanting a virus in our system. However, as with everything, there are complex devices and software to prevent their installation.

• Fires: cryptocurrency mining equipment reaches high temperatures due to the enormous power required, leading the equipment to overheat, so this situation must be prevented with appropriate measures.

Principles and criteria governing the advertising of crypto assets

The CNMV together with our legislator have determined that advertising messages in crypto-asset campaigns must include clear, balanced, unbiased and not misleading content and information on risks in a prominent way and the following warning: “Investment in crypto-assets is not regulated, may not be suitable for retail investors and the full amount invested may be lost“.

Likewise, a mandatory prior notification regime has been established for mass advertising campaigns, defined as those aimed at 100,000 people or more, which must be notified to the CNMV at least ten days in advance. All other actions, without prejudice to being subject to supervision by the CNMV, do not require prior notification.

Supervision of cryptocurrency advertising activity by the CNMV

Circular 1/2022 of 10 January of the National Securities Market Commission (CNMV) on advertising crypto assets presented as investment objects applies to crypto-asset service providers when they carry out such advertising activities, to advertising service providers, or to any other natural or legal person who carries out such activities on their own initiative or on behalf of third parties. This includes natural persons who, for remuneration, advertise and promote crypto assets (products or services promoted through influencers).

There are certain exemptions to the scope of application of the above, such as those cases in which crypto assets are financial instruments (for which CNMV Circular 2/2020 on the advertising of investment products and services is applicable), certain utility tokens and single non-fungible tokens, white papers on new issues, certain presentations and publications by analysts or seminars, and corporate advertising campaigns when they meet certain requirements.
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