FTX bust: Lean times ahead for crypto ad budgets?
Experts see a chaotic time ahead for the crypto industry as uncertainties take over the market
One of the biggest names in the crypto world, Sam Bankman-Fried, is witnessing a reversal of fortune with a scandal setting pace for an uncertain crypto market. The former boss of FTX, a cryptocurrency exchange has stepped down as the chief executive officer and the company has declared bankruptcy.
This fate of the second-largest cryptocurrency exchange in the world has jolted the industry. What kind of future does it face in the coming times? How will their marketing and sponsorships look? Experts believe a storm is brewing and it’s time for the market to batten down the hatches.
After FTX’s major collapse, many remedial measures followed. A sponsor for the ICC Cricket World Cup 2022, FTX was dropped from the final of the league following the news that broke out in the second week of November this year.
Similarly, FTX’s sponsorship was dropped by Mercedez for its Formula one autocar as it removed the logo from its vehicles. This has dealt a huge blow to the crypto companies, showing how quickly things can take a U-turn.
Crypto companies put most of their marketing budgets into influencers and social media, along with big events’ sponsorships. However, the government of India came down with strict rules on advertising virtual digital assets earlier in the year, making it mandatory to give disclaimers and details about the currency among other rules.
Tarusha Mittal, COO and Cofounder, UniFarm, a group staking platform, gave her perspective on the recent event: “In simple terms, FTX was bailed out by Binance after the latter faced a liquidity crunch due to a sudden spike in withdrawals. FTX decided to halt all withdrawals after it witnessed funds to the tune of $6 billion being moved out of the platform resulting in panic among the users of the platform. FTT, the native token of the platform is down by over 80% wiping out $2 billion in value. Retail investors are advised to stay away from buying the dip in FTT tokens to make quick money as the recovery of FTT tokens might be a slow and lengthy process or the recovery may not happen at all. It is also advised not to part your entire capital on exchange wallets as it may affect your liquidity in case withdrawals are frozen by the exchange.”
In a report by data and intelligence provider Fitch Solutions, investor confidence has taken a significant hit over the course of 2022: “One of the impacts of the broader macroeconomic environment as people retreat from riskier assets amid rising interest rates. Crypto prices have experienced extreme volatility and the fall of FTX has only exacerbated this, with the decline in investor confidence now likely to last longer.
“We expect that there will be a downturn in retail investment in crypto markets in the near term as people deleverage in fear of another exchange collapse. In response, exchanges will ramp up their attempts to appear transparent to consumers.”
With the market being this turbulent, it raises questions about the future of this ever-volatile market. While CoinSwitch refused to comment on the state of marketing in the crypto world, experts decided to put their thoughts forward.
Uncertainties lie ahead
Deepak Kapoor, Begin India think tank founder, thinks the future is “bleak” for the crypto market.
He comments on the advertising side of the crypto industry and says “Of course, there is going to be a big downfall in terms of advertising. I think the sentiment is fallen. The sentiment with governments had fallen many, many months back, you can look at the guidelines issued against (on crypto companies) in terms of compliance. Also, taxation has gone over the roof.”
Kapoor believes there are hard times ahead for crypto companies in general and raises a hard-hitting question for advertisers and firms alike - “How can a company justify spending money on advertising when their whole existence is in question today?”
Mittal expects a similar turbulence for the digital currency industry. “The crypto market is highly volatile and retail users should exercise utmost caution in choosing the coin they invest in. Users should keep their portfolios diversified to minimize losses and evaluate their risk appetite regularly. Investors should look at a more secure way of getting returns from their crypto investments. Crypto staking is one such option that gives you guaranteed APY with complete security of the capital invested. Users should choose a staking platform carefully and go through the terms and conditions before locking their assets.”
Hareesh Tibrewala, joint CEO of Mirum India, on the other hand, is positive that crypto will be back stronger, “From a long-term perspective, I don’t see any significant impact on the advertising and marketing of crypto companies. As a technology, crypto is here to stay. However, as a new industry, it will go through its own churn in terms of being able to establish a credible business model. We saw a similar phenomenon in the early 2000s when a plethora of dot-coms came into being, and many of them crashed. However, over the past 2 decades, the industry has matured and now creates huge value for consumers. I see crypto going down a similar route. “
Sanjeev Jasani, COO of Cheil India, believes advertising might not be as affected as we might think but it will definitely instil fear in people investing in crypto. “There definitely will be an impact on people who invest in cryptocurrencies. In fact, we have already started to see signs of it. A popular token on the Solana protocol, for instance, that lets users of that blockchain trade bitcoin, relies on FTX for its value: if the exchange goes under, it is unclear whether any of the bitcoin on that protocol would be retrievable, wiping millions of dollars from existence overnight. This leads to panic in investors who will all try to liquidate and will now be sceptical to invest in bitcoins & cryptocurrencies.
Advertising & Marketing is still at a very nascent stage in the crypto market. So, I’m not very sure if this will impact it. Yes, it might just instil a degree of fear in the minds of consumers and prevent them from investing in the metaverse slowing down progress further. I feel brands are still grappling with how to monetize the meta verse and we have a long way to go there.”
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