Just before 3 PM on January 18th, the crowd at the niTRON 2019 TRON Summit is starting to buzz. Crypto enthusiasts are waiting for the great celebrity basketballer Kobe Bryant to take the stage. The crowd is revved up, but behind the scenes the price action in Tron (TRX) is stalling.
The bears have control of the price…but then a Dragonfly Doji candlestick forms — meaning that the bulls and the bears are pushing the price with equal force. Suddenly, the bulls break away, and the price shoots up, it ascends, and shoots past the upper resistance line of 0.02600! Whoohhh! cheers the crowd back at the conference as Kobe Bryant joins TRON CEO Justin Sun on the stage.
The two super achievers chat about success, motivation, challenges and how to overcome them.
The session ended on a high note, as Kobe advised the Tron-ners to “do what you love to do.” By the end of the day though, TRON’s price had dropped below its opening price – the celebrity endorsement effect had already worn off…
Backed by a slew of celebrity endorsements, crypto became popular with the general investing public in 2018. However, many of those star-backed cryptocurrencies have since faltered. A more discerning investor is rating cryptocurrencies on their fundamentals and less on the celebrity effect.
Of the dozen or so celebrities who have endorsed crypto, more than half of them and/or the endorsed projects have met the wrath of regulators. One target of said regulators is undisclosed compensation.
As Kobe Bryant’s appearance at the niTRON conference was circulating in the media, Floyd “Crypto” Mayweather and DJ Khaled were settling charges by the SEC: they hadn’t reported compensations received for backing ICOs like Stox (only the boxer superstar) and Centra (both celebrities).
The SEC has ruled that any “social media influencer” endorsing a cryptocurrency must disclose any compensation received in exchange for the promotion. More frequently, celebrity-backed ICOs have been charged with various types of fraud, ranging from selling unregistered securities to operating Ponzi schemes.
Celebrity-backed endorsements are like a catch-22. Because the celebrity endorsement is more likely to attract not only more investors, but also non-traditional investors (like my grandma), regulators are more likely to crack down on them. In doing so, they leverage the celebrity effect themselves, to publicize enforcement actions.
These naive investors include Gwyneth Paltrow’s 8 million upwardly mobile health-conscious female Goop subscribers and Snoop Dogg’s/Lion’s 17.6 million Twitter followers. Paltrow advises crypto wallet Abra, and Snoop has spoken at Ripple events. But it’s exactly because homies and green tea toddlers don’t typically dabble in high-risk investments (like crypto) that the SEC is concerned about undue celebrity influence.
Celebrities like Floyd Mayweather and cybersecurity “expert” John McAfee had turned ICO endorsements into a lucrative sideline. McAfee, who charged ICOs $105,000 per tweet, has stopped promoting these projects, citing “SEC threats.” In 2018, he parted ways with cybersecurity firm turned crypto mining company MGT following an SEC delisting and investor lawsuit.
So the big question is: Which celebrity-backed cryptocurrencies should you invest in, if any?
Creating a Step-by-Step Action Plan in Anticipation of Future Endorsements
The reality is that with predictable consistency, the celebrity level of commitment to the startup has mirrored its investment performance (particularly in the short term).
We can break this up into three categories:
- the paid celebrity ICO endorsement — the ICO pop & fizzle
- the paid celebrity event endorsement — the event pop
- the long-term celebrity investor — the long-term value play
#1. The ICO Pop & Fizzle
Many celebrities make their first promotional appearance during the early days of a blockchain startup’s ICO. Without exception, these endorsements have followed the pop and fizzle pattern. But they have to be given credit for understanding social media network effects. Celebrity social media posts went viral, providing a pop in funds invested in the endorsed ICOs.
Some notable examples:
- Centra (CTR) backed by DJ Khaled and Floyd Mayweather raised $32 million on a $26.1 million fundraising goal.
- Mayweather surfaced on September 15, 2017, holding a Centra card in a tweet to his 7.9 million Twitter subscribers. The tweet received 4.6K likes and 1.4K retweets.
- Mayweather also backed Stox (STX) and Hubii Network (HUB). The boxer appeared with stacks of $100 bills when promoting Stox to his 16 million Instagram fans.
What all three ICOs have in common is regulators came after them and accused them of running fraudulent schemes.
And all three have fizzled – that is, seized trading.
- A month after Steven Seagal joined Bitcoiin2Gen as a celebrity endorser, the new “brand ambassador” and founders jumped ship to create a truly-anonymous cryptocurrency while under investigation by several securities regulators for operating a Ponzi scheme.
- During Seagal’s short tenure (34 days!), Bitcoiin hit its soft cap fundraising goal of $75,000. It, too, is now defunct.
Tips: Anti-Celebrity Hype Metrics
If you want to avoid being taken in by a boxer or rapper with a high celebrity hype score, add these screens to your ICO due diligence list:
- Celebrity drop-in – If the celebrity shows up for the first time during the ICO, they are being paid to promote the ICO. They likely have never performed due diligence on the startup.
- Unverifiable team members – Diligently research the other supporters of the project: the executive team, advisory board, and so on. ICOHolder.com’s hunch that unverified Bitcoin team members that may not exist was spot on.
- Low or instant social media followers – Bitcoiin had Facebook and Twitter followers in the 3,000 range (suspiciously low for a Steven Seagal-backed ICO), supporting the phantom team members thesis. If an ICO adds thousands of team members overnight, that too could be a red flag.
- Low rating – Should Floyd Mayweather have more clout than a rating agency? Centra surpassed its fundraising goal, despite having a medium hype score and high overall risk score (ICOratings.com). Stox had a high hype score and medium risk score (most executives were rated a 1) (ICOratings.com). Like any stock investment, ICO research should start with the rating of the firm.
#2 The Event Pop
Several top coins have been using celebrity pull in more traditional promotional ways. They are inviting celebrities to their events – no doubt, for a very fat fee. This celebrity plug provides an opportunity for both the short and the long- term investor.
The Event Pop – The day trader can always play the event pop. Having a celebrity on stage gives a crypto price a boost. You may want to trade this the way you trade other event-related news that could cause an increase in price, like upcoming hard forks and airdrops. In other words, take the pop and get the hell out (close your position). Even Kobe couldn’t keep TRON’s price up for more than a day.
As our play-by-play showed, the price broke out minutes before the sports star walked on stage but the excitement quickly wore off. Similarly, Snoop Dogg’s appearance at a Ripple event on May 18th caused the price of XRP to rise that day, only to continue on its year-long downward trend after the event.
#3 Long-Term Investors
When celebrities endorse companies that do NOT need to do an ICO, these startups are worth a look. If the startup is able to attract private investment, they likely have a viable if not a market-ready product and a good team.
Consider looking at projects listed on Coinlist and other platforms that are (or were) only accessible to institutional investors. Elon Musk’s recent endorsement of Bitcoin (although he’s not a big investor) is one example. If the price was at an all-time high this might feel like he’s jumping on the bandwagon, but because his comments come during a time when the price is at a low point, it feels more credible.
In 2014, Ashton Kutcher invested in Bitpay — the global leader in bitcoin payment processing. Though the company, which has raised over $100 million in private equity investment, is not likely to do an ICO.
COO Sonny Singh is bullish on bitcoin but cool on ICOs. He says, “I think it is safe to say the ICO market is pretty much dead right now. Maybe a couple of them will survive, I’m not sure.”
The SEC has been busy charging more ICOs it deems in contravention of securities laws for raising funds for non-registered securities. So how can investors get in on this play, which is processing $1 billion in bitcoin transactions a year? If we are lucky, the company could eventually do a security token offering (STO). As the flow of ICOs recedes, more regulatory compliant STOs are being done. STOs are one to keep an eye on, which I’ve written about previously.
Besides, you can get tokens in other ways.
Shortly after Gwyneth Paltrow endorsed Abra, the crypto wallet received $18.6 million in private equity investments, almost doubling its funds raised. Abra has introduced the Bit10 token, which is pegged to the Bitwise 10 Crypto Index Token (Bit10) – a basket of 10 cryptocurrencies providing exposure to 80% of the market.
These are companies with a strong business case and are thus able to feed at the trough of the private equity markets.
Anti-Celebrity Hype Metrics – Points to consider when assessing projects behind celeb endorsements
- Angels vs VCs – High profile venture capital funds are more likely to invest in the success of the project (developing the team, partnerships, and so on).
- Product Viability – Is the project a testnet, MVP, already used by thousands of token holders.
- Celebrity Participation – Gwyneth Paltrow is an advisor to the smartphone wallet app, Abra. In 2018, she raised $75 million from major venture capitalists for her lifestyle site Goop.
- Value Creation – The last piece of advice comes from Abra CE0 Bill Barhydt in the pages of Goop: “The goal is to try to find something that will grow in value. With traditional markets, investors need to spend time figuring out how things are moving and be ready to take advantage of opportunities. On a daily basis, crypto markets can be more volatile than traditional markets, but the trend, over time, is that they are increasing in value.”
As I write this, unsupported rumors are circulating of Jay-Z investing in TRON. As long as TRON has its regulatory house in order, the attention could help attract users and investors. For certain, the rapper will also attract the attention of securities regulators.