When Super Bowl Dreams Become Crypto Nightmares

In this edition of the Bloomberg Crypto newsletter, Michael P. Regan opines on one of America’s favorite past-times  — and it’s not the Super Bowl: 

Hold my beer

You may be surprised at how many results a search for “Super Bowl” returns on the Securities and Exchange Commission’s website, and it makes for some interesting reading. There are tales of insider trading tips allegedly being scooped up during trips to the game, accusations of Ponzi schemers spending big on tickets, or even dubious connections to the event itself allegedly being used as honey pots to lure investors into frauds.

Yet SEC leaders themselves appear to be just like most us: Watching the game on TV and marveling at the commercials. As an SEC chair once said in a speech:

How about the Super Bowl a few weeks ago? It seemed that even truck and beer commercials were overshadowed by the number of advertisements devoted to online trading and investment advice. Just three years ago that would have been as unthinkable as the Rams winning the Super Bowl. But in the celebration of today's prosperity, I'm concerned that some of the basic but important fundamentals of investing are being lost on investors. Or, even worse, simply ignored … Unless investors truly understand both the opportunities and the risks of today's market, too many may fall victim to their own wishful thinking

No, that wasn’t Gary Gensler remarking about 2022’s “Crypto Bowl” (though he, too, weighed in on all the hype created by big ad spends from the likes of FTX and COINBASE around last year’s game). Rather, it was Arthur Levitt commenting just weeks before the peak of the dot-com bubble in 2000.

It’s remarkable how little of what Levitt said has changed, save for the fact the Rams aren’t quite the punchline they once were.

As with dot-com stocks in 2000, wishful thinking overpowered appreciation for risks when it came to crypto more than two decades later, especially after being stoked by the combo of unbridled gambling impulse and Madison Avenue creative talent that tend to be uncorked on Super Bowl Sunday. And the risks were hard to miss: Mind you, the price of Bitcoin had already been cut in half between its peak in November 2021 and just a few weeks before last year’s game. Yet the ads worked wonders: Downloads of the Coinbase app jumped 309%, while eToro’s and FTX’s each more than doubled, according to SensorTower

It’s quite likely that all the new interest helped create the dead-cat bounce in crypto in the ensuing weeks. That, of course, was before the rug was pulled with the failure of Terra’s stablecoin in May. The resulting series of crises sparked by that event culminated with the November the collapse of Sam Bankman-Fried’s FTX and the subsequent death spiral for most of the crypto lending sector. And the industry has yet to recover, even as regulators like the SEC’s Gensler finally appear ready to crack down.

So this year, it’s back to the beer and truck ads; crypto companies are expected to be as conspicuously absent as Tom Brady on our TVs this Sunday. Fortune, it turns out, sometimes favors the skeptical and risk averse. But wishful thinking, it seems, is always waiting in the wings. 

Charting it out

Hearing them out

What we’re reading (and writing)

• Crypto Exchange Kraken Ends Staking Program in $30 Million SEC Settlement
• FTX, Celsius Bankruptcies Turn Judges Into De Facto Regulators
• ‘Sam? Are You There?!’ The Bizarre and Brutal Final Hours of FTX (Financial Times)
• ChatGPT Mania Spurs Crypto Fans’ Stampede to ‘Faddish’ AI Tokens
• Crypto Brands Reposition Themselves in Wake of FTX and Market Tumble (Wall Street Journal)
• Hermes Defeats MetaBirkins in the First NFT Trademark Trial

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— With assistance by David Pan