Resilient Strategies for Crypto Marketing Success in 2024: Overcoming Regulations and Scandals

Depending on who you asked about the outlook of the crypto industry going into 2024, you would have heard a response that ranged between cautious optimism and more of the same from 2023. The prevailing bearish macroeconomic conditions of heightened inflation and elevated interest rates tempered expectations.

Even with the potential for a final Bitcoin ETF approval in the U.S. and the next Bitcoin halving, many thought the headwinds were too strong and that the explosion in popularity of AI would siphon off whatever VC money was still available.

As we enter Q2 of 2024, most people are shocked at how strong and resilient the industry is proving to be. The popularity of the Bitcoin ETFs with institutional investors and the calming of the Federal Reserve’s language has spurred renewed interest in the highly volatile asset class.

But what can we learn from the mistakes of the last bull run, and how can we overcome the reputational damage that crypto scandals did while navigating this new regulatory landscape?

How we got here

It seems like a distant memory, but 2021 was a banner year for the industry. Most crypto projects were hitting all-time highs, staking and lending protocols like the Anchor Protocoloffered over 20% returns, and charismatic founders like Do Kwon, SBF, and Alex Maschinsky were being hailed by the mainstream media as the next coming of Steve Jobs.

Yet, there were warning signs that the market sentiment was about to shift and that these new wunderkinder were nothing more than grifters and charlatans preying on overhyped market sentiment.

Even before the bull run in 2021, analysts were highlighting the potential pitfalls of some of the most popular projects of the last cycle. In April 2018,  former Head of Risk at MakerDAO and Research Analyst at Scaler Cyrus Younessi correctly identified the critical failure point in Terra Luna:

“If Terra were to fall and break peg, then it would depend on Luna to Save Terra. But Luna would fall as investors would panic, and then Terra would continue to fall, and then they would just each keep contributing to each other’s demise.”

Collapses in 2022, bear market 2023

The euphoria that was felt across the market in 2021 would come to an abrupt end in 2022 from the fall of the first of many dominoes with the collapse of Terra Luna.

Terra ecosystem

In one of the most remarkable collapses of this period, the Terra ecosystem’s flagship protocol, LUNA, and algorithmic stablecoin (UST) lost its peg to the U.S. dollar, causing the price to crash to zero in a matter of days. LUNA’s fall from grace was made all the more spectacular because of how arrogant its founder Do Kwon was about promoting its strength and stability.

Celcius

Throughout much of 2021, Celsius was considered a premium centralized lending platform. Its charismatic founder, Alex Maschinsky, aggressively promoted its more than 20% return on investment, and it became the de facto custodian for retail and institutional investors. However, the model became unsustainable as the market shifted and the underlying assets began to lose value. It was revealed that Celcius was using Ponzi economics to prop up the platform. It was borrowing new deposits to make up for the lack of funds to pay out the high returns, and the whole platform collapsed under the weight, taking with it investors' deposits.

FTX

No project was as popular or successful during the 2021 bull run as the centralized exchange FTX. It rose to prominence because of its founder, Sam Bankman Fried’s reputation as a dominant arbitrage trader in his first company, Alameda Research. He was an enigma that the media fawned over as he embraced the lifestyle of a humble billionaire by spouting the benefits of the philosophical lifestyle of effective altruism. FTX became the number one exchange globally, signing massive celebrity endorsements from Larry David, Tom Brady, and Steph Curry. FTX had entrenched itself so deeply into the industry by requiring projects it supported to hold their assets on the platform that when it collapsed, it impacted just about everyone in the space. The once dominant exchange was ultimately undermined by Binance’s founder CZ, after he publicly sold Binance’s entire stake in the FTX utility token FTT after it was revealed SBF had been using customers' deposits to cover Alameda’s losses and using FTT to make up the difference on the balance sheet.

Shifting Regulatory Landscape

2022 plunged the crypto industry into a deep bear market that we are only starting to emerge from today. The industry had largely been left to self-regulate, with the SEC only intervening in cases of clear criminality. Yet, the experiences of 2022 left many people heavily criticizing the SEC’s approach, specifically Chairman Gary Gensler and the close relationship he had with SBF and Alameda Research’s CEO Caroline Ellison.

In a change of tone, the SEC and Chairman Gensler began pursuing legal action against anyone and everyone it could in an aggressive shift to a regulation policy by enforcement. The shift impacted individual projects like Ripple, Library, and Tornado Cash. The shift also meant constant deferral delays on SEC regulatory decisions, specifically in relation to Bitcoin ETF approvals, as well as targeting good faith actors like centralized exchanges__Kraken__ and Coinbase. Kraken and Coinbase had been asking for clear regulations for years to operate within. For their troubles of trying to remain compliant, the SEC filed lawsuits against each for operating unregistered security exchanges

To end 2023, the SEC went trophy hunting and emerged with the arrest of the CEO of the world’s largest crypto exchange (Binance), CZ. CZ pled guilty to anti-money laundering charges and now faces over ten years in prison, while the exchange was fined $ 4 billion.

The shift in policy by the SEC represented a direct attack on the industry. Still, it ultimately did more damage by undermining these firms' ability to operate in the U.S. by creating confusion and an environment of ever-shifting regulatory goalposts.

Ongoing hacks and heists

Despite the SEC's new approach to the industry, heists and hacks throughout the industry remained rampant throughout the course of 2023, totaling over $ 1.7 billion.

While 2024 is again proving to be a hotbed for crypto hacks and scams, the first three months totaling over $437 million. With the looming Bitcoin halving and the historical trend of it spurring the next bull run, it is relatively safe to say that this problem will get worse before it gets better.

Outlook for 2024

So, with all the negative sentiment built up in the industry from the last cycle. How can we emerge and market the industry in a positive light?

If we learned anything from the last cycle it's that the product needs to be centerstage rather than any charismatic leader. It is easy to get swept up in the excitement when the market moves, but we need to remember the fundamentals of DYOR.

Accountability for those bad actors of the last cycle is also key. We are beginning to see how the criminal activity of those wunderkind founders was not because they were in crypto but because they were criminals. SBF and Maschinsky committed embezzlement and financial crimes because they took advantage of user funds, not because of anything inherent with the technology. They are more akin to Bernie Madoff than Satoshi Nakamoto. Explaining the difference will be key.

We should also take comfort in the fact that despite Chairman Gensler’s disdain for the industry, he will be limited to his term, other chairmen and women in the SEC have dissenting opinions (Hester Pierce) to the SEC, and his legal challenges to reign in the industry often fail.