Crypto.com is in big trouble – but the warnings were there
Crypto.com did its best to buy its way to the top of the crypto industry. Its massive marketing spend, including a slick Super Bowl ad, managed to attract a peak of 50 million registered users, and by February 2022 it had cemented its position as a top 10 spot crypto exchange.
Unfortunately, it extended itself.
Since the glitzy Super Bowl spot, executives have been laying off employees for months, and new user setup schemes that advertised ultra-high interest rates have collapsed along with the company’s CRO token that subsidized those schemes. Researchers have also discovered suspicious links to the fraudulent company Wirecard.
However, this was far from the only “red flag” which on closer inspection should have pointed out that things are not quite right with Crypto.com.
Red Flag #1: Dramatic irony during the Super Bowl
Crypto.com became one of the few digital asset companies to have a commercial air during the Super Bowl. It is known Fortune favors the brave commercial featured Oscar-winning A-lister Matt Damon. The irony was immediately apparent.
The point of the advertisement – ridiculous at first — was equating the purchase of crypto assets like Crypto.com’s token with early space travel, 18th century expeditions at sea, or the Wright brothers’ maiden flight.
Also, the slogan “fortune favors the bold” is not brave. Pliny the Elder popularized the phrase before sailing towards Vesuvius, where he promptly died amid volcanic splinters and sulphurous steam.
It was actually so bad that South Park satirized the ad for a full TV episode.
The commercial’s dramatic irony gave viewers a clue about the advertiser’s credibility, namely that despite millions of dollars in production and broadcast costs, the company was unable to write an intelligent script.
Red Flag #2: Crypto.com is downsizing
Layoffs are an obvious sign of business trouble. In June 2022, Crypto.com had laid off as many as 2,000 employees from the top in 2021, according to Ad Age.
The company, in turn, denied the figure to Ad Age, though it confirmed that its workforce once numbered more than 5,000 people, that it had laid off hundreds of workers, and would not confirm the total reduction in headcount since the peak.
Red Flag #3: Reduce Marketing Costs
Crypto.com spent a lot of money on marketing, including a Super Bowl ad that cost millions. The naming rights to the Los Angeles Lakers stadium reportedly cost as much as 700 million dollars over 20 years. That deal drew mixed reactions from basketball fans. One Los Angeles Lakers player said the new name would feel “strange” for a while (the venue had been called the Staples Center since 1999).
The company also pulled out of a sponsorship deal with a soccer team, Angel FC, in the same city. It also cut sponsorship dollars awarded to eSports streams on Twitch.
The company was also forced to do so tone down the message in advertisementsincluding reckless endorsements that have been ruled illegal by the UK Advertising Standards Authority.
Red Flag #4: CRO schemes are collapsing
The original team behind what eventually became Crypto.com issued and sold about $26 million worth of CRO’s predecessor token, MCO, via a traditional ICO in 2017. (MCO holders switched to CRO during the company’s 2020 rebrand.)
In the years that followed, the company and its various managers and partners sold countless millions more of MCO/CRO.
Crypto.com was originally called Crypto.org Coin (providing ownership of both .com and .org TLDs), and CRO rebranded as “Cronos” in February 2022 – the same month as Super Bowl ads.
There are several similarities between Crypto.com’s CRO and Celsius’ CEL. Both tokens funded accounts managed by the entities that issued them, subsidizing the operators with additional capital from which they paid monetary incentives to attract new users. Both also increased returns to customers who unlocked the token. They also offered loyalty and usage bonuses, including discounts on various services.
In Crypto.com’s case, it promised debit cards with a tiered cashback system paid in CRO. Investors who bought and staked at least $400,000 in CRO tokens — a staggering sum — can earn an equally staggering 8% cashback on purchases.
This incredible cashback offer has at least quadrupled the average rate for elite cards from non-crypto card issuers.
Of course, the 8% figure was only sustained by a reliable stream of new users buying and locking CRO tokens. When Crypto.com could not maintain the registration rate of new users, it predictably reduced the cashback.
It also started charging other fees. One Redditor even reported receiving an email from Crypto.com saying they would start charging cardholders who staked less than $40,000 in CRO tokens a 3% foreign transaction fee.
Crypto.com too offered perks to unlock CRO like free Netflix, Spotify and Amazon Prime subscriptionsdiscounts on Expedia and AirBnB bookings, and a private jet partnership for major investors.
Investors who stake CRO for long periods can earn an even higher rate: up to 12% APY in stake rewards.
By comparison, US bank certificates of deposit (CDs) tend to peak around 3.5% APY.
Readers will recall that Celsius Network used to offer a comparable APY on stablecoin deposits if stakers accepted payouts in their native CEL token. CEL is now almost worthless amid Celsius’ bankruptcy proceedings.
Crypto.com apparently could not maintain the high APY when it had already attracted depositors. When it cut stake rewards in May 2022, the price of CRO halved within a month.
CRO once traded at a high of $0.98 on November 24, 2021, right around the time Crypto.com announced a deal to rename the Los Angeles Lakers stadium. CRO has fallen to $0.11 today.
Red Flag #5: Suspicious connections to collapsed companies
Crypto.com didn’t help themselves by choosing Wirecard as their card issuer. Wirecard filed for insolvency in June 2020 and is considered to be one of the biggest frauds in modern German history.
Wirecard’s problems began to come to a head when the auditors of Ernst & Young refused to stamp accounting documents for 2019. This failed audit forced Wirecard CEO Markus Braun to admit that the firm had somehow misplaced over $2 billion.
Crypto.com CEO Kris Marszalek promised to refund debit card users who lost money due to Wirecard’s insolvency.
Read More: Even Matt Damon Couldn’t Save 2,000 Crypto.com Employees
Wirecard’s bankruptcy also hit fellow crypto debit card issuer TenX hard. It never recovered and hasn’t tweeted since 2021. TenX’s website remains offline.
Besides affecting Crypto.com and TenX, Wirecard’s bankruptcy drew attention to Germany’s financial system. It owed creditors $4 billion at the time of bankruptcy. Some of the creditors said they did not expect to get the money back. EY called it “an elaborate and sophisticated fraud.”
Finally, Wirecard and Crypto.com were rumored to share a manager with the surname Marsalek. However, Jan Marsalek was a Wirecard Chief Operating Officer; Kris Marszalek (with a “z”) is the CEO of Crypto.com.
However, Kris Marszalek has a strange past, including total collapse of a listed company in AustraliaEnsogo and its subsidiary BeeCrazy.
Conclusion
Crypto.com needs more people to buy and unlock CRO. However, given the token’s 88% decline since November 24, 2021, demand appears to be slowing.
As CRO declines, layoffs continue, and cashback offers dwindle, Crypto.com will soon run out of money to buy the expensive ads needed to distract users from their own red flags.
The Super Bowl ad may have earned millions of views, but its long-term effect may have been the exact opposite of what the company intended.
The layoffs are accelerating. Its main token, CRO, is nearing an all-time low and it is suffering from a catastrophic loss of investor confidence. Its dubious connections to failed companies such as Wirecard, Ensego and TenX have done little to restore that confidence.
All in all, it is completely unclear whether Crypto.com will be able to regain its position among the top crypto exchanges. In mid-February 2022, the firm ranked among the top 10 spot exchanges, but it has fallen to 18th place today. Overspending on questionable marketing may have irreparably weakened the company’s ability to maintain its high ranking.
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