Amidst the global spectacle of the World Cup, sponsors like McDonald's, Budweiser, Adidas, and Coca-Cola are familiar names to audiences worldwide. However, one less familiar brand has also taken center stage: Crypto.com, a cryptocurrency exchange.
Founded in 2016, Crypto.com is a global cryptocurrency exchange headquartered in Singapore, though its parent company is registered in Malta. The platform claims to be one of the fastest-growing applications in the market, boasting a user base of 70 million people.
As of November 16, its average daily trading volume was approximately 3 billion RMB, ranking it 11th among global cryptocurrency exchanges.
This isn't Crypto.com's first foray into sports sponsorship. The exchange has previously invested in high-profile events like Formula 1 racing and the U.S. National Basketball Association (NBA), establishing a visible presence across various competitive sports.
However, this aggressive advertising strategy has struck many industry observers as exceptionally risky.
The Challenge of NFT Sales
A significant part of Crypto.com's business focus is on Non-Fungible Token (NFT) sales. Its widespread sponsorship of sports events is largely intended to generate interest in NFTs and attract new investors to this digital asset class.
Reports indicate that Crypto.com relies heavily on this sponsorship strategy, outspending every other crypto company in this arena. Beyond sports, the exchange has also enlisted major celebrities for endorsement deals, such as Matt Damon, the renowned American actor from The Martian.
Yet, the timing of the FTX exchange collapse was particularly unfortunate, leading many investors and analysts to question the viability of this commercial approach.
Adding to the concern is the fact that FTX also had a penchant for sports sponsorships before its downfall. It had previously secured the naming rights for the Miami Heat's NBA arena, demonstrating its substantial financial firepower.
According to J.P. Morgan, Crypto.com's native token, Cronos (CRO), experienced a sharp price drop during the FTX crisis—falling from $0.1267 to $0.05691. This indicated even stronger capital outflows compared to other cryptocurrencies.
Analysts at J.P. Morgan predict that the volatility and capital outflow affecting Cronos will persist for several weeks. The millions of dollars being funneled into sports sponsorships may only heighten doubts about Crypto.com's financial stability.
A Costly Transfer Error
The recent unusual decline in the value of Cronos is also linked to an operational error made by Crypto.com itself.
In early November, CEO Kris Marszalek tweeted that $400 million worth of Ether (ETH) had been mistakenly transferred to another platform in October. He assured the public that the funds had been successfully recovered.
However, the incident left investors uneasy. The fact that such a significant error went unnoticed for a month was seen as alarming. In the week following Marszalek's tweet, Cronos was hit with massive sell-offs, causing its value to plummet by nearly half.
Leonard Hoh, Head of Asia Pacific at cryptocurrency exchange BitStamp, commented to media that the current lack of transparency across the industry is putting every company's solvency and regulatory compliance under intense scrutiny. The market, he noted, demands tangible proof, not just verbal assurances.
In response, Marszalek attempted to provide more transparency, disclosing that 30% of Crypto.com's reserves are held in Bitcoin—a relatively stable cryptocurrency. The second-largest holding was Shiba Inu (SHIB), a token that is not among the top-traded in the crypto world and is often considered less liquid.
Despite these efforts, the market response has been lukewarm at best.
To make matters worse, due to internal regulatory issues, Crypto.com's recent sponsorship negotiations for the UEFA Champions League were put on hold. Furthermore, financial regulatory authorities in Germany (Bafin) and Austria (FMA) are reviewing whether the exchange is eligible to operate in those countries.
👉 Explore secure trading platforms
Frequently Asked Questions
What is Crypto.com?
Crypto.com is a global cryptocurrency exchange that offers trading, investing, and NFT marketplace services. It is known for its aggressive marketing strategies, including high-profile sponsorships and celebrity endorsements.
Why did Crypto.com sponsor the World Cup?
The company aims to increase brand visibility and attract new users, particularly to its NFT platform. Sponsoring major global events like the World Cup allows it to reach a massive and diverse audience.
How did the FTX collapse affect Crypto.com?
The fall of FTX raised general skepticism about the stability of cryptocurrency exchanges. Crypto.com's native token, Cronos, experienced significant price drops and capital outflows in the wake of the crisis.
What was the impact of the erroneous transfer?
Crypto.com accidentally transferred $400 million in Ether to the wrong platform. While the funds were recovered, the month-long delay in discovering the error damaged investor confidence and triggered a sell-off of Cronos.
Is Crypto.com facing regulatory challenges?
Yes, regulatory bodies in several European countries, including Germany and Austria, are currently reviewing the exchange's compliance with local financial regulations. This has also paused some of its sponsorship activities.
What are the main concerns regarding Crypto.com's reserves?
Although the company disclosed that 30% of its reserves are in Bitcoin, a significant portion is held in less liquid assets like Shiba Inu. This has led to questions about the company's overall financial stability and risk management.