Now a word from our sponsor. Or, maybe not.
Getting your brand on a billboard at one of the world’s biggest sporting events doesn’t come cheap.
Just ask Crypto.com. It became the official cryptocurrency sponsor of the FIFA World Cup earlier this year in a deal that is said to have cost around US$40 million ($59.25 million) but will bring the name of the kit into the homes of more than 3 billion soccer fans worldwide.
Unfortunately, things did not go as smoothly as expected. For starters, Qatar banned cryptocurrencies nearly four years ago, so using or trading them is illegal. Then there’s the sticky human rights issue that emerged at the World Cup, leading some to call for the group to abandon its propaganda push.
Crypto.com was in no rush on the promotion front. He put his name on the Los Angeles Lakers stadium for $700 million ($1.036 billion), signed a $100 million ($148 million) sponsorship deal with Formula 1, splashed money on soccer teams in Paris and Italy, and even earned $25 million. ($37 million) into his AFL.
A year ago, it enlisted actor Matt Damon in an ad campaign called Fortune Favors The Brave, which, given the cryptocurrency crash that began earlier this year, prompted many analysts to count the wealth that fortune investors burned on Crypto.com.
He also became a lightning rod for satirists. Check it out.
Then there was the embarrassing gaffe a few months ago that resulted in 320,000 ether coins being transferred to the wrong address.
However, the darkest cloud hanging over the Singapore-based cryptocurrency exchange is the continued collapse of Sam Bankman-Fried’s FTX.
The collapse of the world’s third-largest exchange, with a deficit of about US$8 billion ($11.85 billion), has rocked the cryptocurrency world amid a crisis of confidence that has seen a mass exodus from the strange world of digital currencies.
It also deflated one of the largest speculative bubbles in human history, causing trillions of dollars in losses for millions of unsuspecting investors.
Law enforcement agencies in the case of cryptocurrency
After 13 years of flying under or around the radar and trying to avoid regulation, cryptocurrencies are suddenly getting a lot of attention from officials.
And not just from regulators. According to some reports, law enforcement agencies across the developed world were suddenly mobilized, alarmed by the deaths and alleged illegal activities of Sam and his colleague Caroline Ellison, who sought safe haven in Dubai.
Even Binance boss Changpeng Zhao, Sam’s longtime nemesis and onetime ally, is feeling the heat. Over the weekend, he said the FTX would raise $2 billion to bail out crypto firms caught in the crash.
But it was his tweet about FTX’s financial situation and decision to announce a coin dump that sparked the run in the first place. Now the UK Parliament’s Treasury Committee is demanding an explanation, but has so far received evidence it has described as disappointing and unacceptable.
Just before FTX’s spectacular implosion, 30-year-old Bankman-Fried was approached by a financial institution. In September, Fortune magazine posed for a cover photo of him with unruly hair, asking: The next Warren Buffett?
Later, as his empire crumbled, he was invited to speak at the News Corporation’s Wall Street Journal technology gabfest in Laguna Beach, California.
Now it has emerged that Ellison, who was previously romantically involved with Bankman-Fried, allegedly used client money to invest in high-risk cryptocurrency ventures.
Who Said Accounting Was Boring?
For many, the crash has sparked a war between cryptocurrency true believers and skeptics. Will it survive? Why it’s just a failure. It goes on.
But the argument misses the point.
The blockchain technology behind cryptocurrencies is secure. It has a wide range of applications for business and record keeping.
However, it is ultimately just an accounting system. Sure it’s complicated, but the bean counting system is the same.
What happened is that it was used as a platform to sell dreams of great wealth to millions of starry-eyed people. Instead of creating meaningful businesses, the crypto kings have turned it into a vehicle, or rather multiple vehicles, for speculation.
In the depths of the Global Financial Crisis – when the entire financial system was on the brink of collapse – it was sold as the future of money, where governments and central banks would be prohibited from manipulating currencies.
But instead of a currency, bitcoin created a nation. At last count, there were 21,844 cryptocurrencies, of which 9,314 are active.
Given the wild fluctuations in their value, they are generally useless for transactions or storage of wealth. They have become useful for anyone who wants to hide transactions, such as money launderers, thieves, and drug dealers.
Mainly used to invest in either themselves or other cryptocurrencies or convert to old style fiat money. In fact, it was a dream turned fantasy. What a fantasy with estimates involving hundreds of millions of people globally.
In the end, even traditional finance could not resist this temptation. Venture capital firms threw large sums of money at new entrants. Big banks helped facilitate trade and even pension funds that were loaded on them.
Bubbles in Overdrive
Bitcoin may be one of the biggest financial bubbles of all time. But this is certainly not the first.
From tulips in the Netherlands in the 1630s to the Mississippi Co. and the South Sea Bubble nearly a century later, there is a consistent pattern to the stock market boom of the 1920s.
Something viable or desirable reaches a point where ordinary greed suddenly turns into mass hysteria and collective insanity engulfs society.
In the end, it always ends with a bang and a lot of pain.
Mike Mangan, a fund manager and former investment banker, makes the surprising observation that bubbles are becoming more frequent, based on research from Bank of America with data going back 300 years.
“What’s interesting is that 75 percent of the bubbles listed by BofA have burst during my career,” he said.
“As each bubble burst, another stepped neatly into its place. If nothing else, I think it’s a historical indictment of our generation.”
So why don’t we learn from recent history? The answer can only lie in what caused the GFC and gave birth to bitcoin; the belief that we can manipulate the monetary system to outpace the economic cycle without any side effects.
Over the past half century, every crisis has elicited the same response from regulators and central banks; interest rates were lowered. As the long-term interest rate trend continued downward, we finally found ourselves with zero rates.
This has had a negative effect on everything but eliminating financial risk. This encouraged increasingly risky behavior.
Financial regulation and the de-valuation of currencies led to great progress. They have also created more sophisticated debt instruments that can be traded for profit or loss, as we discovered in 2008.
While rates are likely to begin a long and slow climb, the clock is unlikely to turn back, price risk to decide again.
Maybe 20 years from now, if someone in your family discovers the 2022 World Cup, AFL, Formula 1 or American basketball replays, some kid might question you and ask, “What is this cryptocurrency? ?”
Good luck explaining that.