Two days ago—nearly a month after Crypto.com aired their “Moment of Truth” ad featuring Lebron James advising his younger self during the Super Bowl—the company revealed that 5,550 exclusive NFTs had been airdropped to fans through a hidden QR code in the spot.
Found at the 10 second mark, the QR code is visible for just a tenth of a second, before being obfuscated by a young Lebron crossing the screen.Users diligent enough to pause the video and scan the code were directed to a landing page where they could submit their email addresses for a raffle.Winners were rewarded with one of 15 unique NFTs, which featured behind the scenes content including clips of Lebron in his recreated childhood room.
Hiding “easter eggs” (a longtime staple in video games as far back as Super Mario World) represent a growing strategy by crypto companies to capitalize on the “game-ified” investing movement.Coinbase took a similar approach with their widely publicized floating screensaver QR code, and Crypto.com has in fact already done this once before—hiding a QR code in their now infamous “Fortune Favors The Bold” Matt Damon commercial.Some companies, such as play-to-earn Ninja Fantasy Trader take the gamification one step further—allowing users to earn NFTs by successfully winning paper money “trading battles” of real securities against other users.
While creative, it’s unclear what the long term dangers of this approach could be.There are wide concerns that the $4 billion monthly NFT market is under-regulated, and well into dangerous bubble territory.
A 2021 report by Chainalysis found that only 29% of traders who purchased and then sold a newly minted NFT made money—indicating the vast majority of NFT traders are losing money, with the profits mostly going to the NFT creators themselves.
When a crypto trading company vying for public legitimacy plays into this kind of environment, it not only muddles the line between financial investment and wild speculation, but also between digital assets and securities.
For context, NFTs have historically fallen outside of the SEC control.This is because the Howey Test—the SEC’s essential framework for determining if a digital asset counts as a security—has determined that there is no expectation that third parties will extend managerial efforts that will enhance the value of their NFT.That is to say, the value is determined by the market, not by the actions of the NFT creator.
However Crypto.com represents a unique case as it’s both an NFT creator, and operator of an NFT exchange.Given this relationship, it could be argued that Crypto.com in fact “creates or supports a market for or the price of, the digital asset,” making it a breach of SEC regulation.
Furthermore, even though the airdrop was free, because Crypto.com required user emails for the selection process, this would now legally be considered an “event of sale”, which requires the offering to be registered with the SEC.
This is because any sort of valuable information— including demographic information or emails for better ad retargeting—are considered a monetizable product.
While NFT enthusiasts will likely want to watch crypto commercials with an extra keen eye, crypto companies themselves will likely keep their eye on upcoming regulation.With BlockFi recently being hit with a whopping $100 million fine and President Biden announcing the urgency of federal research on crypto currencies, it’s likely consequential decisions regarding the future of crypto will soon lead to a “moment of truth” that might not be as pleasant as a Lebron James commercial.
