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 50 million registered users and by February 2022, it had cemented its position as a top 10 spot crypto exchanges.

Unfortunately, it overextended itself.

Since its glossy Super Bowl spot, executives have laid-off staff for months, and new user onboarding schemes that advertised ultra-high interest rates have collapsed alongside the company’s CRO token that subsidized those schemes. Researchers have also discovered suspicious ties to the fraudulent company, Wirecard.

However, this was far from the only ‘red flag’ that on closer inspection should have pointed to things not being quite right with Crypto.com.

Red flag #1: Dramatic irony at the Super Bowl

Crypto.com became one of a few digital asset companies to have a commercial air during the Super Bowl. Its famous Fortune Favors the Brave commercial featured oscar-winning A-lister Matt Damon. The irony was immediately apparent. 

The point of the commercial — laughable at first — was to equate buying crypto assets such as Crypto.com’s token with early space travel, 18th century high seas expeditions, or the Wright brothers’ maiden flight.

Moreover, the catchphrase is “fortune favors the bold,” not brave. Pliny the Elder popularized the phrase before sailing toward Mt. Vesuvius where he immediately died amid volcanic shrapnel and sulfurous fumes.

Indeed, it was so bad that South Park satirized the ad for a full TV episode.

The commercial’s dramatic irony provided a clue to viewers about the credibility of the advertiser, namely that, despite millions of dollars in production and broadcast costs, the company couldn’t manage to write an intelligent script.

Red flag #2: Crypto.com slashing headcount

Lay-offs are an obvious sign of corporate trouble. By June 2022, Crypto.com had laid off as many as 2,000 employees from its 2021 peak, according to Ad Age.

For its part, the company rebutted Ad Age’s figure, although it did confirm that its workforce once totaled over 5,000 people, that it had been laying off hundreds of workers, and wouldn’t confirm its total headcount reduction since its peak.

Red flag #3: Slashing marketing spend

Crypto.com spent a lot of money on marketing, including a Super Bowl ad that cost millions. The naming rights for the Los Angeles Lakers’ stadium reportedly cost as much as $700 million across 20 years. That deal earned mixed reactions from basketball fans. One Los Angeles Lakers player said the new name would feel “weird” for a while (the venue had been called the Staples Center since 1999).

The company also backed out of a sponsorship deal with a soccer team, Angel FC, in the same city. It also slashed sponsorship dollars allocated to e-sports streams on Twitch.

The company was also forced to tone down its messaging in ads, including reckless endorsements ruled illegal by the UK Advertising Standards Authority.

Red flag #4: CRO schemes collapse

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 swapped to CRO during the company’s rebrand in 2020.)

In the years that followed, the company and its various executives and partners sold untold millions more worth of MCO/CRO.

Originally called Crypto.org Coin (flexing its ownership of both .com and .org TLDs), Crypto.com rebranded CRO to “Cronos” in February 2022 — the same month as its Super Bowl ads.

There are several similarities between Crypto.com’s CRO and Celsius’ CEL. Both tokens funded accounts managed by the entities who issued them, subsidizing the operators with extra capital from which they paid monetary incentives to attract new users. Both also increased yield to customers who locked up 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 payable in CRO. Investors who bought and staked at least $400,000 in CRO tokens — a staggering sum — could earn an equally staggering 8% cashback on purchases.

This incredible cashback offer at least quadrupled the average rate of elite cards from non-crypto card issuers.

The 8% figure, of course, was only sustained by a reliable stream of new users buying and locking up CRO tokens. When Crypto.com couldn’t maintain new user sign-up velocity, it predictably slashed its cashback.

It started charging other fees, as well. One Redditor even reported receiving an email from Crypto.com that said it would start charging cardholders who staked less than $40,000 in CRO tokens a 3% foreign transaction fee.

Crypto.com also offered perks for locking up CRO like free Netflix, Spotify, and Amazon Prime subscriptions, discounts on bookings at Expedia and AirBnB, and a private jet partnership for big investors. 

Investors staking CRO for long periods of time could earn an even higher interest rate: up to 12% APY in staking rewards.

By way of comparison, US banks’ certificates of deposit (CDs) tend to top out around 3.5% APY.

Readers will recall that Celsius Network used to offer a comparable APY on stablecoin deposits if stakers accepted payouts in its native CEL token. CEL is now nearly worthless amid Celsius’ bankruptcy proceedings.

Crypto.com apparently couldn’t sustain that high APY once it had already lured depositors. When it slashed its staking 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 that Crypto.com announced a deal to rename the Los Angeles Lakers’ stadium. CRO has declined to $0.11 today. 

Red flag #5: Suspicious connections to collapsed companies

Crypto.com didn’t help itself by choosing Wirecard as a card issuer. Wirecard filed for insolvency in June 2020 and is widely considered to be one of the largest frauds in modern German history.

Wirecard’s problems started coming to a head when the auditors at Ernst & Young refused to rubberstamp 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.

Crypto.com apologizes for selecting one of the largest frauds in modern history as its card provider.

Read more: Even Matt Damon couldn’t save 2,000 Crypto.com staff

Wirecard’s bankruptcy also badly impacted fellow crypto debit card issuer TenX. It never recovered and hasn’t tweeted since 2021. TenX’s website remains offline.

Besides impacting Crypto.com and TenX, Wirecard’s bankruptcy got the attention of Germany’s financial system. It owed creditors $4 billion at the time of the bankruptcy. Some of its creditors said they were not counting on getting that money back. EY called it “an elaborate and sophisticated fraud.”

Finally, there were rumors that Wirecard and Crypto.com shared an executive with the last name Marsalek. However, Jan Marsalek was a Wirecard Chief Operating Officer; Kris Marszalek (with a “z”) is the CEO of Crypto.com.

Kris Marszalek does have a curious past, however, including the total collapse of a publicly listed company in Australia, Ensogo, and its subsidiary, BeeCrazy.

Conclusion

Crypto.com needs more people to buy and lock up CRO. Given the token’s 88% decline since November 24, 2021, however, demand seems to be waning.

As CRO declines, lay-offs continue, and cashback offers dwindle, Crypto.com will soon run out of money to buy the expensive ads needed to distract users from its own red flags.

Its Super Bowl commercial might have earned millions of impressions, but its long-term effect might have been the exact opposite of what the company intended.

Lay-offs are accelerating. Its main token, CRO, is approaching all-time lows, and it’s suffering a catastrophic loss of investor confidence. Its suspicious connections to failed companies like Wirecard, Ensego, and TenX have done little to restore that confidence.

In all, it is entirely unclear whether Crypto.com will be able to regain its position among top crypto exchanges. In mid-February 2022, the firm ranked among the top 10 spot exchanges but it’s fallen to 18th place today. Overspending on questionable marketing might have irreparably impaired the company’s ability to sustain its lofty rank.

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Source: https://protos.com/crypto-com-is-in-big-trouble-but-the-warnings-were-there/