Recommendations are a broad part of marketing. Notorious brands get a large percentage of their budget for endorsements. Reportedly, 28% of Nike’s marketing budget goes to athletes to win their endorsement deals.
Celebrity endorsements are not a marketing innovation that accompanied the rise of social media. In fact, it has been an established marketing strategy since the late 19th century. Many studies have shown that consumer attitudes and behavior are changed by celebrity endorsements.
Social media influencers have taken it to another level. For example, Kim Kardashian gets paid $250,000 per photo that endorses a product on social media posts.
This is not unusual when we consider how consumer behavior changes with celebrity movements. For example, Snoop Dogg bought a piece of virtual real estate at the Sandbox Metaverse and in no time got neighbors who paid a lot of money to virtually live next door to him.
Charles Randell, Chairman of the UK Financial Conduct Authority, mention that social media influencers are routinely paid by scammers.
Now let’s go back to basics and explain this strategy. The most important element of brand endorsement marketing strategy is a public statement by an individual or organization in support of a product’s quality, features, benefits, and the like. That public statement changes everything – most importantly, it generates profit.
Endorsement marketing is a two-way street; Like brands, celebrities are known for jumping on the latest trends, be it a trendy diet, TikTok dance, clothing or cosmetics. Many of them are also perceptive investors, pushing their own brands through their popularity.
As celebrities promote all kinds of products, crypto was no exception. The first celebrity to adopt a cryptocurrency was comedian Drew Carey, who tweeted in 2013 that he couldn’t pay for his meal in Bitcoin.
Many other recommendations came after Carey was unable to pay for his breakfast with crypto. Bitcoin boomed in 2021 as multiple NFL players converted their full paychecks to crypto and the adoption trend continued.
Snoop Dogg and Bjork also took up the Bitcoin craze and accepted Bitcoin as payment for album purchases. Paris Hilton auctioned off a digital painting of her pet that sold for $17,000 on Ethereum. Finally, Kanye West publicly stated that the vision of the Bitcoin community could lead to a real liberation of humanity.
Whether through paid endorsement or new revenue streams, it makes sense why artists are praising crypto. Digital assets have the potential to revolutionize the music industry.
While part of the celebrity community wants to pay in crypto and trade crypto assets, other celebrities have decided to support entire cryptocurrency projects. There’s a long list of celebrity endorsements, so let’s name a few.
In 2017, the football player Luis Suarez promoted the prediction market Stox, and a year later Gwyneth Paltrow spoke highly of the crypto exchange Abra.
Another famous athlete was paid in crypto in 2021. This time it wasn’t Bitcoin, but fantokens. Therefore, in 2021, Cristiano Ronaldo became the first footballer to be paid in cryptocurrency, converting his salary for an Italian Serie A match into 770 fan tokens from Juventus, the club he was playing for at the time.
Some well-known people took a step forward and supported certain projects financially. Ashton Kutcher invested in Unikrn, a crypto sports betting platform, while business magnate Richard Branson invested about $30 million in BitPay. Serena Williams also got caught up in the crypto endorsement hype and invested in Coinbase through her investment company.
Considering how many regular users wanted to make a quick buck in the crypto world, celebrity endorsements don’t seem strange at all. There are many investment opportunities in a relatively new environment. For example, 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. Endorsements from big celebrities in the crypto world – be it Tom Brady or Matt Damon – helped consumers feel more comfortable with crypto projects and trading on markets.
However, in some projects the supervisors were involved. Problems arose when it became apparent that celebrities strongly endorse financial products and projects and give away financial and investment advice. For example, many celebrities focused on supporting Initial Coin Offerings (ICOs), as research found that approvals 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 learned how much power social media influencers have over consumer attitudes and choices.
The Miami Heat arena has been named FTX Arena since June 2021. On the same day that FTX filed for bankruptcy, the Miami Heat team and Miami-Dade County decided to to end their relationship with the cryptocurrency exchange.
The Securities and Exchange Commission got into the crypto endorsement game and fined a number of celebrities. Music producer DJ Khaled and renowned boxer Floyd Mayweather were fined in 2018 for promoting Centra Tech. Centra Tech founders – Robert Farka, Sohrab Sharma and Raymond Trapani – pleaded guilty to conspiracy to commit securities and fraud related to their ICO.
Promoting without adding compensation violates Section 17(b) of the Securities Act, as can be noted in the case of DJ Khaled and Mayweather. Section 12 also applies as it provides that it is illegal to offer or sell a security without registering it or containing a material misstatement or omission.
This did not stop celebrities. After all, the world was in the middle of a hype. Two years later, Stevan Seagal and John McAfee were fined for involvement in several ICOs. More specifically, Stevan Seagal supported Bitcoinin2Gen, a fraudulent digital currency company.
The main problem in these cases arose from the fact that celebrities were paid to promote these projects, but did not know whether to fully disclose the ambiguous facts to consumers and investors. Matt Damon even told potential investors that fortune favors the brave.
In 2022, the SEC announced that Kim Kardashian has agreed to pay a $1.26 million settlement for endorsing the crypto token EthereumMax to millions of her followers, without disclosing that she received $250,000 to promote it .
The US Exchange Commission warned influencers about the need to disclose sponsored posts and reminded individual investors to be careful about promoting celebrities. Such recommendations served the SEC well, as it was a great opportunity to bolster the claim that crypto assets are indeed financial securities.
The most significant event of failed celebrity endorsements occurred during 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 US Securities and Exchange Commission.
The company was doing well until the plan failed. Meanwhile, Bankman-Fried used many lucrative celebrity endorsements to lure new users to the exchange.
Immediately after the collapse in November 2022, an FTX investor sued the founder along with several celebrity endorsers. The celebrity list includes Tom Brady, Gisele Bündchen, Steph Curry, Naomi Osaka, Shaquille O’Neal, David Ortiz, and a bunch of other celebrities.
Interestingly, all of these celebs went silent when times got tough. When NBC News reached out to the spokespersons for 10 celebrities, none of them commented. In the end it was all about the money. The problem is that celebrity crypto endorsements encourage unnecessary risk over a long period of time.
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 stories of overnight wealth and potential to bring new capital to the table, big players jump on the bandwagon without really understanding it.
A lot of time has passed since celebrities recognized the power of social media to expand their reach. Using digital communication, influencers develop relationships with consumers. On the other hand, financial advisors have not been able to jump on the social media bandwagon so quickly, mainly due to SEC regulations in the United States.
One big difference is clear: financial services companies know the SEC regulations, which is why they move slowly in a celebrity-dominated area. True finance professionals have the knowledge and authenticity to educate and guide potential clients, while celebrities usually mislead consumers because they have not added proper disclaimers to their posts.
Unfortunately, the crypto world is filled with many scams and affairs. Celebrities chasing paid promotion made it harder for crypto to clear its name. If we look closer, the biggest problem is that people who really don’t understand crypto is promoting it to a wide audience. Although the SEC and similar committees worldwide want to establish crypto as a security, this time it probably helped the crypto community.
It’s great that crypto has entered mainstream waters in such a fast time, but it’s about educating people about crypto rather than pushing them into uncharted territory. We can blame celebrities, but we can also blame crypto companies that turned out to be scammers. Most importantly, crypto has survived and social media has become more aware of the fact that influence can go the wrong way.