Celebrity backing can make a big difference in the success of a crypto project, but that doesn’t mean the endorsement of a famous person makes it trustworthy.
According to a 2023 research paper by two former United States Securities and Exchange Commission economists, Joshua White and Sean Wilkoff, there is a link between a celebrity endorsement of a crypto project and the likelihood of its dubiousness.
During their research, White and Wilkoff found that in 2019, 26% of the initial coin offerings (ICO) they examined were likely scams. That number increased to nearly 40% by 2023.
Source: ZachXBT
Speaking to Cointelegraph, Amy-Rose Goodey, managing director of the Digital Economy Council of Australia (DECA) — formerly Blockchain Australia — said celebrity endorsements existed long before crypto.
While they can attract consumer attention, she said a famous person’s endorsement shouldn’t be the sole factor in determining a project’s legitimacy. Thorough research and a critical eye are the key.
“It always comes down to due diligence and a keen eye for detail. A major red flag would be if all the essential elements are missing,” Goodey said.
“Transparency, a clear and realistic roadmap, an experienced and identifiable team, and detailed technical information, leaving only the celebrity endorsement to prop up the project.”
A number of big names, including sports stars Shaquille O’Neal and Tom Brady, actresses Gwyneth Paltrow and Paris Hilton, and many more high-profile public figures have lent their names to crypto projects that have ended up going bust or disappearing altogether.
Source: Blockonomi
According to Goodey, celebrity backing doesn’t always mean a project is untrustworthy and should be avoided as long as all the key elements for success are present and transparent.
“Celebrity endorsements have long been a staple in the marketer’s toolkit across every industry, dating back to the 1700s when ‘royal endorsements’ served as the precursor to modern celebrity branding,” she said.
A lack of transparency isn’t just a red flag for potential investors; it can also attract the attention of regulators.
In March of 2023, eight celebrities, including actress Lindsay Lohan and YouTuber Jake Paul, were among a group of people charged by the SEC for not disclosing they were paid to shill a crypto project.
Around the same time, a class-action suit was filed against influencers who helped promote the now-defunct crypto exchange FTX without disclosing the compensation they received.
Context is king for judging celebrity backing
Robert Hoogendoorn, head of content at blockchain analytics platform DappRadar, told Cointelegraph that celebrity backing for a crypto project isn’t always a red flag.
It often depends on the project and the credentials of the famous person.
“Celebrity-backed crypto projects aren’t always a red flag. For example, various sports heroes have backed fantasy sports platforms,” he said.
“However, the moment we step into the area of memecoins and NFT collections, it becomes very dodgy. Those projects often turn out to be rug pulls or scams.”
CoinGecko lists 1,673 memecoins, with a combined market cap of around $38 billion. However, that only scratches the surface.
Over 1.7 million tokens have been launched via Pump.fun since its launch in January, with less than 1.5% of them ever reaching a total value of more than $63,000.
Since May, several public figures, including Caitlyn Jenner and Jason Derulo, have launched and promoted crypto tokens using their likeness.
Crypto analytics firm Bubblemaps has claimed to have witnessed onchain insider activity during several of these coin launches, with some wallets profiting millions of dollars.
Overall, Hoogendoorn said it’s often safer to be skeptical of a project backed by a celebrity, especially “when they praise a certain token you’ve never heard of, you know the project paid $50,000 for the shoutout.”
However, he added that there are exceptions out there, depending on the context.
“In general, celebrities promoting crypto projects tends to be a major red flag, and we’ve seen that with various celebrities, tokens and NFT [non-fungible token] collections,” he said.
“However, celebrities genuinely backing a project through investment rounds should not necessarily be considered a red flag. There’s a difference there.”
Celebrity scam ads are a whole different beast
Ken Gamble, executive director and chairman of international private intelligence and cyber investigations firm IFW Global, told Cointelegraph that a celebrity advertising a crypto project could be a red flag in certain cases.
In his experience, there are a staggering number of fake celebrity crypto ads shilling products online that are scams, stealing famous people’s likenesses and voices through deepfake technology and artificial intelligence.
Cyber investigator Ken Gamble says he has been monitoring fake celebrity endorsement adverts on social media for some years now. Source: Ken Gamble
In these cases, the celebrity might not even know they have endorsed a product. As was the case with billionaire Australian mining tycoon Andrew Forrest.
In July of 2022, he launched legal proceedings against Meta over Facebook ads that used deepfakes of his image to promote scam crypto schemes after discovering them online.
“As a subject matter expert in international cyber fraud, I have never seen a genuine endorsement of a crypto project by a real celebrity,” Gamble said.
“However, there are cases where lower-level sports stars have been lured into spruiking fake investment schemes.”
Australia’s competition watchdog, the Australian Competition and Consumer Commission (ACCC), has also launched legal action against Meta over the prevalence of fraudulent celebrity scam ads on the platform.
The ACCC says over half the ads on Facebook prompting crypto projects are scams. Meta refutes this number and claims it has done quite a bit to curb the problem.
According to Gamble, “the bulk of the celebrity enforcement adverts on Facebook are generated and manufactured by organized crime groups,” who market them across the world in multiple languages.
Scammers have started stealing famous people’s likenesses through deepfake technology and AI to promote sham projects. Source: Ken Gamble
He says most of the sham ads he has seen came from one source: Israel. Specifically, a company called Conversion Masters generated leads for the binary options industry but has since switched to crypto scam ads.
Magazine: Crypto whales like Humpy are gaming DAO votes — but there are solutions
“The ads get the attention of the victims, and their objective is to get ‘First Time Deposits’ for criminal gangs operating the fraudulent trading websites,” he said.
“The criminal scammers then contact the victim directly, build a relationship online and pressure them into investing more and more, until they lose everything.”
