Celebrities and their crypto fever, where to warn the AFM and the SEC before?
In recent weeks, the AFM and the SEC issued warnings for both celebrities who commit themselves to a cryptocurrency and Initial Coin Offerings in general. The financial newspaper writes about THE AFM’s warning. For the users without a subscription to the financial daily newspaper here a summary article of Tweakers.net. And finally the warning of the SEC.
You may have seen them pass by, famous television characters or sports heroes who endorse an “Initial Coin Offering” (ICO), so-called “celebrity endorsements“. An ICO is a process in which an organization offers the coins that are to be used on their application for sale to the masses for the first time on their blockchain application. Often they are accompanied by photos of exotic cars, expensive champagne, and beautiful views. But are the organizations behind these ICOs trustworthy? I go in depth into a number of these organizations and compare them with organizations from an earlier era.
To bring cryptocurrency to the masses more easily, Centra has created a debit card for cryptocurrencies. The company made premature use of celebrity endorsements and affiliate marketing. In the hard-to-find whitepaper of Centra (because it has been removed from several official locations) you can read that, through the bounty program, a total of 2,000,000 CTR could be earned. Centra has raised seed capital for $ 7 million, and with raised another 170,000 Ethereum (ETH) tokens with the ICO, which is equivalent to $ 51 million (at the time of raising).
There are, however, a number of aspects that require some clarification. For example, there was some internal confusion about who was the initial CEO & Co-Founder and the team consists of a total of 21 individuals, of which only two are developing the product.
To guide all new cryptocurrency enthusiasts in the forest of different coins, Follow Coin will launch a platform. On this platform you can follow the trading tips of your favorite crypto trader in exchange for native tokens, FLLW. Follow Coin is one of the most recent ICOs that I examine: the ICO was opened on October 27. The goal is to collect 49,000 Ethereum (ETH) tokens with the ICO, which is equivalent to $ 15 million.
Follow Coin has managed to attract a number of big celebrities for their marketing. For example, the popular rappers DJ Khaled, who you may remember from Centra(CTR), and Nipsey Husslede promoted the ICO to their loyal social media followers. Recently, the national social media fitness sensation Joel Beukers also expressed his support.
A positive point is that Follow Coin actually has a working product, while many organizations behind an ICO only have a product in an alpha/test phase or even just a concept. debatable, however, is the intended end result of the ICO: $15 million: the average startup settles with $1 million.
The competition of Follow Coin is (not so) oddly enough, not using a blockchain. The popular trading platform Bux has a follow option, by which people can closely follow their favorite traders. Bux is competition for Follow Coin because it has recently enabled the purchase of cryptocurrency via their trading platform. In addition, there is a blockchain initiative called Bitquence(BQX). Bitquence relies on the wisdom of the crowd to achieve a good trading strategy.
Finally, I examine Stox. Stox is a cryptocurrency-market predictive platform. The usage of this platform is paid with the native token, STX.
Stox got celebrities like Floyd Mayweather, also known from Centra, and Luis Suarez to promote their ICO. This was the first time Floyd Mayweather promoted a cryptocurrency. After the promotion of the Stox he has (so far) promoted two other ICOs, including Centra and Hubii.
As “honorable mention” I quickly examine Lydian. Lydian is a decentralized market research platform. You may wonder where the advantages of blockchain come together in this concept, but that is a story for another time. The nice thing about this project is that it has been promoted by none other than Paris Hilton. Lydian wants to raise $100 million with their ICO, so they can use some help.
Instead of using their own software (which is intended to generate leads for), they have enabled the help of Paris Hilton. Unfortunately, Mrs. Hilton had to withdraw her support for Lydian when it became known that the CEO of the parent company, Gravity-4, had been convicted of the atrocity of hitting and kicking his girlfriend 117 times. The ICO of Lydian runs until November 20, 2017.
A different era
The era I want to draw the comparison with is the end of the twentieth century; 1997 to 2001. Also known as the “dot-com bubble”. During this period, as with today’s ICOs, huge amounts were spent on seed funding for startups and on an “Initial Public Offering” (IPO). Even then, emerging internet companies used celebrities to get attention. I take two internet companies with a less-than-desired outcome under the magnifying glass.
Flooz.com, based on the Arabic word for money fuloos, was an internet company from 1999. You can view the concept as a global, uniform savings program. During the three active years, Whoopi Goldberg played a role in Flooz.com television advertising.
A total of $35 million of seed capital was raised. In 2001, reports surfaced that saving points were bought with stolen credit cards on the Flooz.com platform. This ultimately bankrupted the organization.
Webvan.com was founded in 1996. Via Webvan.com, people could order their groceries and have it delivered directly to your home. The fact that Webvan.com wanted to build everything from the ground up (think of (almost) autonomous department stores and its own delivery service), finally bankrupted them. Webvan.com has made television advertising with the actor Brandon Kleyla.
With the funding that Webvan.com received, it had to be a recipe for success. In total, $800 million of investments were raised and another $375 million was raised during the IPO of the organization. On the first IPO of Webvan.com, the share 65 shot upward, from $15 to a 24-hour high of $34, and a closing amount of about $25.
As you can see, celebrities are still used to bring a product to the masses. In both periods, this has proved to be a popular strategy. Tripp et al (1997) claims that the more celebrities promote a product, the more negative the sentiment about this product will become. This also applies to the celebrities themselves; if they often promote different products, this has a negative effect on their credibility. This would mean that organizations like Stox and Follow Coin create a negative sentiment around them through the frequent use of celebrity endorsements. This can also be seen in the reactions under the promotional material:
Nevertheless, these ICOs have achieved their investment goals, so in financial terms, it may bring a number of advantages. My thought is that celebrity endorsements is a proven effective way to introduce your product to the crowd, but whether the image of your company will also get a boost from it, is still the question. In addition, the Securities and Exchange Commission (SEC) recently issued a warning for celebrity endorsed ICOs. I would, therefore, like to give you the friendly advice to first investigate the organization behind the ICO and not to take over the, often unquantified, opinion of the celebrity.