Whether you consider it “an Enron” or “a Lehman,” the reverberations of FTX’s sudden collapse will be felt for years in the cryptocurrency sector.
In a shock Chapter 11 filing last Friday, the cryptocurrency exchange platform cited a “severe liquidity crisis” and revealed it owes money to as many as 1 million creditors, from individual investors to pension funds.
FTX, which just two months ago had a market valuation of $32 billion, is alleged to have used customer deposits to fund Alameda Research, the trading house of its enigmatic founder, Sam Bankman-Fried. Lawsuits followed, and experts have predicted that Bankman-Fried will face criminal charges of fraud.
FTX’s fall from grace isn’t just a reputational hit to the crypto sector. Celebrities have also been named in a class-action lawsuit against Bankman-Fried, including star athletes Tom Brady, Stephen Curry and Naomi Osaka, who all endorsed the exchange.
The PR agency sector is not immune to the reverberations, including the specialist agencies spawned from crypto’s rise and bigger shops with crypto practices.
“It’s always been a volatile industry, from crypto prices to Netflix documentaries probing crypto currency exchanges,” says James Wright, global CEO of Red Havas, which has offered international comms support for blockchain companies since 2018.
“But it never got as bad as this. It’s almost like a Bear Stearns moment from a cryptocurrency perspective, in terms of how quickly everything collapsed,” he says, referencing the once leading global investment firm’s meltdown in late 2008 that drove the financial crisis.
All of the agencies PRWeek spoke to for this article say they did not have assets in FTX, though many have dabbled in other cryptocurrency initiatives.
With the launch of its Z3 Web3 consultancy in September, Zeno Group bought virtual real estate on the 3D virtual world Decentraland to onboard people and brands into the metaverse, as well as for research. That required the firm to launch its own crypto treasury. However, none of its digital assets are held in FTX or other exchanges with their own tokens, but rather a self-custody wallet.
“We advocate clients to do the same, and do that for the clients we handle it for,” says Rob Stone, head of Z3. “But that being said, a lot of retail investors, many of whom are our clients, use sites like FTX as it looks and feels like a banking app.”
As far as crypto’s reputational hit on agency business, Stone says it did not pique the interest of clients the way the metaverse has.
“The metaverse is where clients are investing time and effort,” he explains. “Crypto is seen as part of the metaverse ecosystem, but clients don’t have an appetite to get directly involved in crypto.”
It is a different situation for some so-called crypto or blockchain agencies.
Melrose PR hit a home run with its client, Swan Bitcoin CEO Cory Klippsten, who has emerged as a “call it as I see it” thought leader in crypto and blockchain after months of calling out Bankman-Fried on his business practices.
Case in point: when cryptocurrency news outlet CoinDesk was leaked a balance sheet from Alameda Research, the outlet’s editors shared it with Klippsten, who analyzed it and shared his findings with editors. CoinDesk’s subsequent article about Alameda, in which Klippsten was quoted calling the former billionaire “Scam Bankman-Fraud,” sparked mass withdrawals from FTX. CoinDesk did a follow-up interview with Klippsten on Monday, and he was quoted by Fortune, The New York Times and PBS this week.
Kelley Weaver, CEO of Melrose PR, says as awful as this narrative is for the crypto sector, clients like Klippsten are turning it into a PR win for the firm.
“There is an overall opportunity for agencies to build credibility with journalists. All mainstream media have full-time crypto reporters, and they need credible and trusted resources to help them unpack and make sense of this mess,” says Weaver. “I think we will come out of this having solidified our trust with reporters even more.”
Molly Glennon, VP and head of Crypto at Ditto PR, has been consulting its clients in this space “on how they can create strong messaging around it.” The firm has its own crypto practice.
Two clients, in particular, have become visible: Bitstamp, a cryptocurrency exchange based in Luxembourg, and Floating Point Group, a crypto-trading platform.
Bitstamp Americas CEO and global chief commercial officer Robert Zagotta, for instance, gave his assessment to Bloomberg in an article headlined, “FTX Was an Empty Black Box All Along” and was interviewed by CNBC about how Bitstamp assures customers it isn’t leveraging their money.
Floating Point Group cofounder Kevin March, meanwhile, was quoted about Binance’s intent to buy rival FTX earlier this month by The Wall Street Journal (“Binance’s Deal for Rival FTX Marks Power Shift Amid Crypto Turmoil”) and MarketWatch (“Tensions rise between crypto exchanges Binance and FTX. What it means for the market.”)
“It’s an opportunity to get back to and talk about the roots of blockchain technology, which is to create a more transparent, open financial system,” says Glennon. “While there’s disappointment that this has happened, I think it is an opportunity to push for clearer regulation and more transparency in the industry, like proof of reserves.”
In summer 2021, Allison+Partners opened a Miami office and built out a blockchain and digital assets consultancy. The Stagwell firm continues to see opportunity in the space.
“This is certainly a reckoning for the nation’s crypto industry,” says David Baum, GM for the consultancy. “But it is also an important opportunity; the U.S. government has been slow to move on this global sector, and this will likely accelerate overdue regulation.”
“The opportunity for us and other agencies is to help clients make sense of and navigate what will be a shifting regulatory landscape,” he says. “It will be about making sure that clients have an integrated comms strategy that puts them in a good position as regulation comes into fruition…And so, as tumultuous as the last few weeks have been, I think long-term it is going to be looked on as an important pivot-point for the future growth of the industry.”
Wright agrees, saying that exchanges will need to do a lot of communications work to rebuild trust.
“Currencies like Bitcoin are pretty steady, but the issue here is with the exchanges,” he says. “Comms work will be in building trust that these exchanges are safe and regulated enough that these things can’t happen. We will have to educate people about how these exchanges are set up, which ones you should trust and the ones you should stay clear of.”
