The Year of Cryptos: Marketing Greats and Failures

The year 2022 will have put a definite end to the innocence surrounding cryptocurrencies. The financial scandals surrounding some of them revealed the industry’s reliance on extremely fragile companies under the guise of marketing efficiency.

Don’t you understand anything about blockchains and the algorithms that govern cryptocurrencies? Don’t worry, that’s not what we’re talking about here. In fact, the bankruptcies that have marked the cryptocurrency industry are quite classic financial scandals.

Take the collapse of the FTX cryptocurrency exchange last November, which resulted in a total loss of eight billion dollars for depositors. It should be recalled that Binance announced that it will buy FTX on November 8. Just 24 hours later, he backed down in the face of a newly discovered financial mess on the company’s books.

Usually, an exchange like FTX makes a profit by charging a commission on each trade. But FTX worked … otherwise. Simply put, the owner of the platform that runs the cryptocurrency called FTT also owned a hedge fund (hedge fund), Alameda, which makes risky investments.

Two separate businesses owned by the same person. Besides, Alameda was a client of FTX. Hello conflict of interest! And their investments failed. So the owner Alameda embezzled funds from his customers at FTX to wipe out his losses – just like any Ponzi scheme where you take money from new customers to pay fake returns to other investors.

When FTX customers demanded their money back, the company ran out of money and everything collapsed. FTX liquidator John Ray, who liquidated Enron after the former energy company’s financial scandal in 2001, said he had never seen anything so sad: no ledgers, no reliable records, everything from tools like Slack and QuickBooks to run the business. passed. FTX owner Sam Bankman-Fried, formerly (Banquier-Frit…!) is now facing fraud charges.

What the scandal shows are the dangers of the marketing on which the cryptocurrency craze is based. The 30-year-old entrepreneur was a charismatic figure in cryptocurrency: young geek With his curly hair and the looks of his generation, he presented himself as an altruist who would revolutionize the world of finance.

SBF, as the saying goes, has become a guru. He has given millions of dollars to the Democratic Party (while his more hard-line co-chairman, Ryan Salame, has given the same amount to the Republican Party).

By doing multiple interviews after the speech, SBF honestly played the mea culpa and mistake card to save its image. Newspaper New York Post led him to his own game with a devastating cover page, where he was nicknamed the Furry Plotter.

What 2022 shows is an industry that relies on marketing and stardom to build credibility. Last Super Bowl, actor Matt Damon promoted cryptocurrency in a commercial. So did actress Gwyneth Paltrow and basketball player LeBron James.

In October, reality TV star Kim Kardashian was fined $1.26 million for promoting the EthereumMax cryptocurrency to her 225 million Instagram followers.

He was also banned from promoting this cryptocurrency for the next three years. Its cache for this unique the story, he probably didn’t even write it himself? Two hundred and fifty thousand dollars. Proof that the Seal of the Stars is wanted. (But don’t worry about Kim: Compared to his wealth, the fine is about $100 for the average American.)

Before him, boxer Floyd Mayweather ($300,000) and singer DJ Khaled ($100,000) were fined.

For the Securities and Exchange Commission (SEC), the American financial markets authority, the fine imposed on Kardashian was a message to all successful influencers: you have a duty to disclose the amount affected when promoting financial instruments.

On his YouTube channel, where he tries to popularize the economy, SEC chief Gary Gensler sent this message to fans who could lose all their savings by following celebrity advice: “Just because your idol says it’s better than it is, let alone legal . »

Cryptomarketing has become such a scourge that even Pierre Poilievre fell in love with the idea during the Conservative Party leadership race.

Note that 13% of Canadians have invested in cryptocurrencies, and some are unaware of it. Ontario Teachers Fund loses $95 million in FTX failure.

Since March, the SEC has launched several investigations against cryptocurrency companies, including FTX. This is all the more important because, unlike a financial institution, victims do not have insurance on their investments.

Some, like the SEC, are calling for elected officials to regulate cryptocurrencies to prevent shipwrecks like FTX. No need to answer to elected officials because this company’s behavior is already illegal.

We understand the reluctance of the authorities. Regulating cryptocurrencies would mean incorporating them, as well as their opacity, into the existing financial system. And allow this market access to programs aimed at rescuing failing financial institutions (rent).

The industry, seen by some as an alternative solution freed from the dogmas of the traditional financial system, appears to be prone to the same excesses, but with more volatile raw materials.