Cryptocurrency Market Outlook: Do Celebrity-Endorsed ICOs Perform Better Than Others?
In 2017, at the hight of the ICO boom, several celebrities – with little to no cryptocurrency experience – were recruited by blockchain startups to promote their token sales.
While this helped to boost fundraising efforts, as it gave projects more attention that they would have otherwise gotten, it also creates concern that unknowing investors were being roped into investments they maybe did not fully understand.
In this article, we will look into how the biggest celebrity-endorsed ICOs have performed to investigate whether there is a correlation between celebrity endorsements and token performance in the secondary market.
Performance Analysis
Floyd Mayweather, Paris Hilton, Steven Seagal, Jamie Foxx, and DJ Khaled have all made headlines when they were among the first celebrities who promoted initial coin offerings.
This trend started in mid-2017 when boxing legend Floyd Mayweather become the first celebrity to promote a token sale and ended in early 2018 when it became evident that celebrities were being paid (and duped) into promoting projects that can only be described as scams.
Stox
Partly thanks to Floyd Mayweather’s endorsement, the blockchain prediction markets platform Stox managed to raise $30 million during its ICO. Stox was raising money to develop a Bancor-based prediction platform that enables users to leverage the wisdom of the crowd to bet on the outcomes of events, including sports, finance, and politics.
The Stox (STX) token, an ERC20 Ethereum token, was sold for $1.103 during its token sale in August 2017. At the time of writing, the STX token was trading well below its issue price at $0.09.
Despite launching its product in 2018, the value of the Stox token was in free fall throughout most of 2018 – in line with the majority of the altcoin market – to lose over 95 percent of its initial value.
Cobinhood
Jamie Foxx jumped onto the ICO promotion bandwagon when he endorsed the Cobinhood ICO in a tweet in September 2017. While Cobinhood is arguably one of the better celebrity endorses cryptocurrency projects, offering a zero-fee cryptocurrency trading platform, its token’s performance has left investors disappointed.
Cobinhood’s COB token was launched at a price of $0.0735. Today, the value of one COB token is $0.0358 according to CoinMarketCap, having lost over 50 percent of its initial value since it started trading in the secondary market.
Scams and Unlawful Promotion
Unfortunately, underperforming tokens is not the worst that can happen to cryptocurrency investors who decide to invest in tokens promoted by their favorite celebrity. There have also been instances of alleged fraud by companies who held celebrity-endorsed ICOs in 2017.
Centra
Aside from backing Stox, boxing champion Floyd Mayweather also promoted the cryptocurrency debit card company Centra during its ICO. He was joined by famous hop-hip artist and producer DJ Khaled. However, it turns out that the two celebrities were most likely backing what can only be described as an ICO scam.
Centra’s founders are currently being sued by several of its ICO investors and the SEC has launched an investigation against the two for
According to an SEC press release, the regulator “alleges that Sohrab “Sam” Sharma and Robert Farkas, co-founders of Centra Tech. Inc. masterminded a fraudulent ICO in which Centra offered and sold unregistered investments through a “CTR Token.” Sharma and Farkas allegedly claimed that funds raised in the ICO would help build a suite of financial products.”
Furthermore, the SEC alleges that Centra made false claims about building a suite of financial products, including cryptocurrency debit cards, and created misleading marketing material including paying celebrities to endorse its token sale.
Both Centra founders are now under arrest and, needless to say; the CTR token dropped to zero and investors lost all their money.
LydianCoin
Paris Hilton endorsed the LydianCoin ICO managed to raise over $11 million, according to the company, partly thanks to Miss Hilton’s endorsement.
“LydianCoin (LDN) is a utility-token that allows cryptocurrency-enabled purchasing of targeted, A.I. driven digital marketing and advertising services operated and under development by the Gravity4 Corporate Family,” according to the company.
While that may sound enticing to unknowledgeable investors what that means is that the newly created LydiaCoin’s only utility is that it can be used to purchase Gravity4’s products, which can already be bought using fiat currency, so the value-add of this new coin is close to zero.
To add to that, the person behind the LydianCoin ICO, Gravity4 founder Gurbasksh Chahal, was ousted from his company as CEO after he violated his domestic abuse probation. This, combined with the de facto non-existent utility of LydiaCoin, does not bestow a lot of confidence in the future success of the LydiaCoin project.
CoinMarketCap did not list LydianCoin and CoinGecko has categorized it as inactive. According to Coincodex, one LydianCoin (LDN) is now worth $0.02, down 99.6 percent from its $5.00 ICO issue price.
It is hard to envision a scenario where this digital currency will gain value, and several members of the cryptocurrency community have called out LydianCoin as a scam, or at the very least, as a very shady company.
Paris Hilton has since deleted her promotional tweet and has distanced herself from the LydianCoin project.
Bitcoiin
Of course, a list of ICO scams would not be complete without an exit scam. In early 2018, actor and martial artists, Steven Seagal, promoted a new cryptocurrency called Bitcoiin.
As TheNextWeb correctly pointed out at the time, the Bitcoin ICO was a very shady affair composed of badly written marketing material, a buzzword-filled whitepaper with no substance, an endorsement by a controversial celebrity that has no connection to cryptocurrencies and a name that was meant to attract investors.
Perhaps unsurprisingly, the Bitcoiin ICO, which alleged raised over $75 million according to its founders, ended in what can only be described as an exit scam. Bitcoiin was even served with a cease-and-desist order by the state of New Jersey for “fraudulently offering unregistered securities in violation of the Securities Law.”
In March 2018, Bitcoiin announced that its founders and Steven Seagal were stepping away from the project so that it could become a leaderless cryptocurrency with no one having any control over it. In other words, the project’s founders took the raised funds and left investors with another “sh*tcoin” that nobody needs.
Unsurprisingly, no price information could be found for Bitcoiin as it is not listed on any exchanges or cryptocurrency price data platforms. According to the company website, Bitcoiin can be traded on its exchange, called Thorex. However, the Thorex website does not load up when clicked.
SEC Says Celebrity Endorsements May Have Been Illegal
In November 2017, the U.S. Securities and Exchange Commission published a statement in which it highlighted that the celebrity endorsements of cryptocurrency investments may be illegal and that investors should tread with caution when considering investing in celebrity-backed ICOs.
“Celebrities and others are using social media networks to encourage the public to purchase stocks and other investments. These endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement,” the SEC wrote.
The Takeaway
As our analysis shows, celebrity endorsements as not a good indicator of success and should not be taken into consideration when making investment decisions. Instead, celebrity endorsements can be considered a red flag when considering investing in an ICO.
If anything, you could even argue that celebrity endorsements of ICOs can be seen as a counter-indicator that could suggest shorting a token might be a smarter trade than buying these tokens.
If a blockchain project feels the need to opt for celebrity endorsement for its token sale, it may be a sign that the project does not have enough quality to stand on its own.
Furthermore, the shockingly high percentage of celebrity-endorsed ICOs that turned out to be scams should act as a cautionary tale for both investors and celebrities who are being offered a fee for promoting investments that they do not fully understand themselves.
