Facebook’s new rules for crypto-related ads aim to weed out the bad apples

When it relaxed its ban on cryptocurrency-related ads a few weeks ago, Facebook also threw in some new rules.

It said that crypto companies must show “licenses they have obtained, whether they are traded on a public stock exchange, and another relevant public background on their business” to be able to run ads about their products and services on the social network.

Facebook, however, continues to ban ads specifically for initial coin offerings (ICOs) or binary options. Binary options involve betting on the price of a currency to go up or down against another currency after a certain amount of time. Such trades are illegal in some countries because they’re susceptible to price manipulations.

Facebook said it previously banned all crypto-related ads to avoid promoting financial products and services frequently associated with “misleading or deceptive” practices.

John DeCleene, the associate fund manager at investment firm OCIM, says the new relaxed rules will help promote the blockchain industry while weeding out bad actors.

“Allowing selected cryptocurrencies to advertise will slowly introduce high-quality crypto projects to the general public, which will, in turn, change people’s mindset when it comes to this asset,” he says. Such projects have solid use cases, track record, and development teams, he notes.

The public has been spooked by news of scams and exchange hacks. From January to July this year, a total of US$731 million was stolen from crypto exchanges, with two of the biggest hacks coming from Asia. Japan’s Coincheck and South Korea’s Coinrail lost US$500 million and US$40 million, respectively, in crypto heists.

Only legit firms can apply

Explaining how the Facebook ads application process works, Violet Lim, co-founder, and CEO of blockchain-based dating app Viola.Ai says the social network will first access the advertiser’s account to see if it’s legitimate. It will then check for licenses and do a background check on the company, before approving any ads about its crypto projects.

“This raises the standards for the advertisements as well as the crypto industry as a whole,” she claims.

“I believe well-established firms will benefit most,” DeCleene adds.

According to Huobi Research’s estimates, as of 2017, 20 million users go online to avail of blockchain services. They make up about 0.5 percent of total internet users worldwide and are a very small community compared to Facebook’s more than 2 billion users.

Facebook ads give blockchain firms the opportunity to tap into the social network’s massive user base who may not even know about the technology.

Not everyone’s looking to advertise on Facebook

Cross-border payments firm Rate does not intend to post ads on Facebook to grab more customers. Instead, it’s using the platform to keep its existing users engaged and recruit more staff, including blockchain engineers and community managers, says its co-founder and CEO Jake Goh.

Goh points out that some crypto companies already have an active presence on other social media platforms such as Twitter, Telegram, blogging portal Medium, and discussion forum Reddit. This may mean that Facebook isn’t as important an advertising channel for them.

Self-serving?

Celine Xiao, a blockchain analyst for Huobi Research, speculates that “the initial ban [might have been] only temporary while Facebook sought to build up an understanding of the blockchain industry.” After all, the US company has started exploring how to leverage the tech across its platform.

As one of the world’s tech titans, Facebook “cannot turn a blind eye to the blockchain,” DeCleene points out. “Crypto and blockchain frequently go hand-in-hand, so if they decide to ban crypto adverts, then they are setting themselves up to fall behind the times as more and more companies begin to embrace blockchain.”

The tech firm needs to understand how blockchain works before they can manage the advertising aspect of it “more meaningfully,” Xiao adds.

Given the growth in the cryptocurrency market, allowing more crypto ads will also help Facebook boost its advertising revenue, she suggests.

ICO ads remain barred

But Facebook still prohibits advertising ICOs as this space is largely unregulated.

Banning ICO ads was a sound decision, observes Xiao. “As the market is not sufficiently mature, such controlled measures appear reasonable. A deep technical knowledge [from interested participants] is required to evaluate a particular project conducting the ICO.”

Moreover, because Facebook generally caters to mainstream consumers, the experts believe that it has a responsibility to educate them on cryptocurrencies.

“Many consumers are still rather ignorant. They don’t know the difference between Bitcoin and blockchain, and many still think Bitcoin is a good indicator for how the overall crypto market is heading. Since so many people look toward Facebook as a pioneer with regards to technology, the responsibility [for consumer education] falls more on Facebook,” says DeCleene.

The US firm should lay out clearly the terms and conditions on what startups can post and make sure that they strictly adhere to these rules, he adds.

It seems that cryptocurrency startups understand why ICO ads are still barred on Facebook.

“We think ICO-related ads should continue to be banned or receive more scrutiny – many of them are slightly misleading,” Goh says.

“We respect Facebook’s decision. It is to minimize any potential scamming attempts and to protect its users,” says Lim.

But she also thinks that cryptocurrency is here to stay, and it’s only a matter of time before it becomes a norm. “Although crypto is still at its infancy and a lot more work needs to be done, it definitely is a growing industry with a lot of potentials to do good.”