Endorsement compliance is not a new thing in the United States. The Federal Trade Commission’s (FTC) Guides Concerning the Use of Endorsements and Testimonials of Advertising is a set of guidelines designed to help advertisers meet the standard of truthfulness.
Endorsements are a broad component of marketing. Notorious brands secure a large percentage of their budget for endorsements. Allegedly, 28% of Nike’s marketing budget goes to athletes to lock in their endorsement deals.
Celebrity endorsements are not a marketing innovation that came along with the rise of social media. In fact, it has been a well-established marketing strategy since the late 19th century. Many studies have shown that consumer attitudes and behaviour are modified by celebrity endorsements.
Social media influencers have taken it to another level. For example, Kim Kardashian gets paid $250,000 per photo endorsing a product on social media posts.
Brands are in an ongoing race. As technology advances, so does marketing. For example, many famous brands jumped right into the Metaverse to connect with the gen z audience. You can read more about it here: ‘How the metaverse is helping Gen Z connect with their favourite brands’.
This is not unusual if we take into account how consumer behaviour is changed by celebrity moves. For example, Snoop Dogg bought a piece of virtual real estate at the Sandbox Metaverse and got neighbours in no time who paid a lot of money to virtually live next to him.
Charles Randell, chair of the U.K.’s Financial Conduct Authority, stated that social media influencers are routinely paid by scammers .
Let’s go back to basics now and explain this strategy. The key element of the brand endorsement marketing strategy is a public declaration from a person or organisation in support of a product’s quality, features, benefits and similar. That public declaration changes everything – most importantly, it brings profit to the table.
Endorsement marketing is a two-way street; similar to brands, celebrities are well known for jumping on the latest trends, whether it is a trendy diet, TikTok dance, clothing or cosmetics. Many of them are also perceptive investors, pushing their very own brands through their popularity.
Since celebrities promote all types of products, crypto wasn’t an exception. The first celebrity to endorse a cryptocurrency was comedian Drew Carey who tweeted about being unable to pay for his meal in Bitcoin back in 2013.
Many other endorsements came along after Carey couldn’t pay for his breakfast with crypto. Bitcoin prospered in 2021 when multiple NFL players converted their whole salaries to crypto and the endorsement trend continued.
Snoop Dogg and Bjork took upon the Bitcoin craze as well and accepted Bitcoin as payment for album purchases. Paris Hilton auctioned a digital painting of her pet which sold for $17,000 worth of Ethereum. Finally, Kanye West publicly stated that the vision of the Bitcoin community could lead to a true liberation of humanity.
Whether it is about paid endorsement or new revenue streams, it is logical why artists praise crypto. Digital assets hold the potential for revolutionising the music industry.
While a part of the celebrity community wants to pay in crypto and trade crypto assets, other celebrities have decided to endorse whole cryptocurrency projects. There is a long list of celebrity endorsements so let’s mention a few of them.
Back in 2017, the football player Luis Suarez promoted predictions market Stox, and one year later, Gwyneth Paltrow spoke highly of the crypto exchange Abra.
Another famous athlete was paid in crypto back in 2021. This time it wasn’t Bitcoin yet fan tokens. Therefore, in 2021 Cristiano Ronaldo was the first football player to be paid in cryptocurrency, converting his salary for an Italian Serie A match into 770 fan tokens of Juventus, the club he played for at that time.
Some famous people went a step ahead and backed certain projects financially. Ashton Kutcher invested in Unikrn, a crypto sports betting platform while the business magnate Richard Branson invested approximately $30 million in BitPay. Serena Williams was also carried away by the crypto endorsement hype and invested in Coinbase through her investment company.
If we think of how many ordinary users wanted to make some quick money in the crypto world, celebrity endorsements don’t seem odd at all. There are many investment opportunities in a relatively new environment. For instance, the hip-hop artist Akon launched his own cryptocurrency under the name ‘Akoin’ and announced plans to build a smart city powered by crypto in Senegal.
All these projects have been successful so far. Major celebrity endorsements across the crypto world - whether it is Tom Brady or Matt Damon - helped consumers feel more comfortable with crypto projects and trading on markets.
However, some projects got the regulators involved. Problems emerged when it became evident that celebrities are heavily endorsing financial products and projects and giving away financial and investment advice. For example, a lot of celebrities focused on backing Initial Coin Offerings (ICOs) as research found that endorsements increase the amount of money raised as well as the likelihood of the token being added to an exchange. Therefore, not every influence is a good one.
More than ever, high-profile individuals have a social and ethical responsibility to consumers. This became a fact even before crypto became a popular term among celebrities - when the world found out how much power social media influencers hold in relation to consumers' attitudes and choices.
Miami Heat’s arena has been called FTX Arena since June 2021. On the same day when FTX filed for bankruptcy, the Miami Heat team and Miami-Dade county decided to terminate their relationship with the cryptocurrency exchange.
The Securities and Exchange Commission stepped in the crypto endorsement game and fined a bunch of celebrities. The music producer DJ Khaled and the famous boxer Floyd Mayweather were fined in 2018 for their promotion of Centra Tech. Founders of Centra Tech – Robert Farka, Sohrab Sharma and Raymond Trapani- pleaded guilty for conspiring to commit securities and wire fraud in relation to their ICO.
Promoting without adding a compensation disclosure poses a violation of section 17 (b) of the Securities Act, as can be noticed in DJ Khaled's and Mayweather's case. Section 12 is also applicable since it determines that it is unlawful to offer or sell a security without registering it or containing a material misstatement or omission.
This didn't stop celebrities. After all, the world was in the midst of a hype. Two years later, Stevan Seagal and John McAfee were fined for involvement in various ICOs. More specifically, Stevan Seagal endorsed Bitcoiin2Gen, a fraudulent digital currency company.
The main issue in these cases emerged from the fact that celebrities were paid to promote these projects but did not know or care to fully disclose ambiguous facts to consumers and investors. Matt Damon even told potential investors that fortune favours the brave.
In 2022, the SEC announced Kim Kardashian has agreed to pay a $1.26 million settlement for endorsing the crypto token EthereumMax to millions of her followers without disclosing she was paid $250,000 to promote it.
The U.S. Exchange Commission warned influencers about the need to disclose sponsored posts and reminded individual investors to be cautious regarding celebrity endorsements. Such endorsements came in handy to the SEC since it served as a great opportunity to strengthen the claim that crypto assets are indeed financial securities.
The main event of failed celebrity endorsements came in the midst of the FTX scandal, when Sam Bankman-Fried, the founder of the crypto exchange FTX, was arrested in the Bahamas for fraud and money laundering. The self-made billionaire was accused of leading a years-long fraud by the U.S. Securities and Exchange Commission.
The business was doing great until the scheme failed. In the meanwhile, Bankman-Fried utilised many profitable celebrity endorsements to attract new users to the exchange.
Right after the collapse in November 2022, an FTX investor sued the founder along with several celebrity endorsers. The list of celebrities includes Tom Brady, Gisele Bündchen, Steph Curry, Naomi Osaka, Shaquille O’Neal, David Ortiz and a bunch of other celebrities.
Interestingly, when times became tough, all these celebrities went silent. When NBC News contacted the spokespeople of 10 celebrities, none of them offered a comment. At the end, it was all about the money. The problem is that celebrity crypto endorsements encourage unnecessary risks for a long period.
When it comes to crypto, doing your own research helps a lot. Instead of trusting social media posts, it is best to educate yourself about potential red flags. You can start by reading this article: ‘The most common crypto scams & how to avoid them’.
Crypto was created by misfits who wanted economic freedom and data privacy. As ecosystems grew, the whole concept became more mainstream. When something is trendy, injected with overnight wealth stories, and potential to bring to the table new capital, big players jump on the bandwagon without really understanding it.
A lot of time has passed since celebrities recognised the power of social media for increasing their reach. Using digital communications, influencers develop relationships with consumers. On the other hand, financial advisors haven’t been able to jump on the social media bandwagon that quickly, mostly due to SEC regulations in the United States.
A major difference is evident – financial service organisations know SEC regulations and therefore, they have been moving slowly in an area dominated by celebrities. Real professionals in the field of finance have the knowledge and authenticity to educate and guide potential clients, while celebrities mostly misled consumers due to not adding proper disclaimers to their posts.
Unfortunately, the crypto world is filled with many scams and affairs. Celebs on the hunt for paid promotion made it harder for crypto to clear its name. If we take a better look, the main problem is that people who genuinely don’t understand crypto promote it to a wide audience. Even though the SEC and similar commissions worldwide want to establish crypto as a security, this time it probably aided the crypto community.
It is great that crypto got into mainstream waters in such a fast time, but the point is to educate people about crypto instead of pushing them into uncharted territory. We can blame celebrities, but we can also blame crypto companies that turned out to be scammers. The important thing is that crypto survived and social media became more aware of the fact that influence can go in a really bad direction.
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