The risk-laden sector at the heart of F1's latest sponsorship arms race

The Scottish journalist and poet Charles Mackay was best known for his book The Thames And Its Tributaries when, in 1841, he published a seminal text in the study of human stupidity, its insight rendered no less relevant by the passing of almost two centuries. In Extraordinary Popular Delusions and the Madness of Crowds, Mackay details subjects as diverse as the South Sea Bubble, the Crusades, and indeed ‘the Influence of Politics and Religion on the Hair and Beard’.

“Every age has its peculiar folly,” wrote Mackay, “some scheme, project or phantasy into which it plunges, spurred on by the love of gain, the necessity of excitement, or the force of imitation.”

Low interest rates over the past two-and-a-half decades have prompted a rush into alternative investments as a means of expanding wealth. Money created by central banks via quantitative easing, for the purpose of propping up the global economy after the financial crash of 2008, has fuelled asset bubbles in stock markets worldwide along with an orgy of high-risk venture capitalist ‘big bets’.

The crypto sector is throbbing with such seed capital largesse as newly minted companies vie for market share, fighting to draw the ‘investment’ cash of the average punter. And F1 is benefitting from this – not only has pretty much every team added a crypto ‘platform’ to its portfolio, F1 itself has an official crypto partner that took out naming rights to the Miami Grand Prix. Alfa Romeo counts among its roster a cryptocurrency lending platform, Vauld, which claims to offer “automatic wealth creation”, and Floki Inu, a “cryptocurrency meme platform” censured by the Advertising Standards Authority in March.

There are those who argue cryptocurrencies and NFTs do justify a place in a balanced portfolio since they have a perceived value – after all, we’re long past the point where conventional currencies are backed by central bank gold reserves. But this is to enter the territory of the Greater Fool Theory – the principle that you can still profit from overpaying for an asset, provided you can offload it to a ‘greater fool’ who is willing to pay an even higher price.

Alfa Romeo is among the F1 teams with cryptocurrency sponsors - the Vauld logo is on the front wing

Photo by: Glenn Dunbar / Motorsport Images

The technological principle of decentralised ledgers that underpins cryptocurrencies and their kissing cousins, non-fungible tokens (NFTs), is sound. What’s ironic is that a space that was conceived as a means for ordinary citizens to not have to deal with corrupt, venal and incompetent financial institutions has itself been colonised by crooks, shysters and mountebanks.

An abiding issue with cryptomania is that many people rushing into crypto ‘investments’ don’t understand the technology or the principles behind them, and simply believe that their values will always rise. Crypto advocates are positively messianic in their fervour, faithfully obeying the tropes of cognitive dissonance: “have fun staying poor”, a phrase targeted at sceptics, has achieved meme status.

You might well also ask why F1, which is aiming to have a ‘net zero’ carbon footprint by 2030, is jumping into bed with companies whose trade is a virtual commodity, the upkeep of which consumes vast quantities of electricity

Blind faith, and the veneration of gurus, are common denominators in many popular delusions. Mackay said this of the Scottish financial wizard John Law, architect of the ‘Mississippi Scheme’, which nearly bankrupted France in the 18th century: “When fortunes such as this were gained, it is no wonder that Law should have been almost worshipped by the mercurial population. Never was a monarch more flattered than he was… wit was in all his words, goodness in all his looks, and wisdom in all his actions. So great a crowd followed his carriage that the regent sent him a troop of horse as his permanent escort to clear the streets before him.”

The crypto space has gurus in abundance, and not all of them are savoury characters. OneCoin, for instance, was fronted by the glamorous Dr Ruja Ignatova, who would regularly evangelise before audiences of thousands at venues as large as Wembley Arena – before she vanished in 2017 along with $4billion of investors’ cash. Six months earlier a whistleblower had revealed OneCoin didn’t even have a blockchain, just an ordinary SQL database – but such was the power of belief that people continued to buy in.

Eventually, asset values in a bubble reach a point at which fools rush out rather than in, and prices crash. This is difficult to predict – famously, Sir Isaac Newton cashed out of the South Sea Company early, making a tidy profit, only to be drawn back in by rising values and eventually banking a loss. As Mackay wrote in his preface, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Bitci logos appeared on the McLaren F1 car last year

Photo by: Charles Coates / Motorsport Images

The warning signs are there if you care to look. In February McLaren terminated its deal with Turkish blockchain start-up Bitci and the arrangement that included the marketing of non-fungible ‘fan tokens’ - it's understood it was canned due to promised sponsorship payments not forthcoming.

In April, F1 Delta Time – an officially licenced game involving the acquisition of digital collectibles launched to much fanfare in 2019 – was shuttered when F1 pulled its licence. Users were given one day’s notice and offered generic tokens for the company’s other racing games. Among those left in limbo was Vignesh Sunderesan, aka MetaKovan, a Singapore-based blockchain investor who had paid over $110,000 for an ultra-rare digital effigy of an F1 car on this platform. While modern gamers are well used to paying extra for new content and storylines, additional weapons, ‘loot boxes’ and such, a crucial distinction here is that this was pitched as an investment. As the gaming website Kotaku put it, this is “a test case for what happens when a licensed NFT game dies”.

You might well also ask why F1, which is aiming to have a ‘net zero’ carbon footprint by 2030, is jumping into bed with companies whose trade is a virtual commodity, the upkeep of which consumes vast quantities of electricity. Famously, Bitcoin alone requires 150 terawatt-hours annually to keep the lights on, equivalent to the consumption of Argentina – and producing 65 megatons of carbon dioxide. To ask these questions, though, is to be dismissed as “a hater”, a limp ad hominem which is the captive epithet of the industry.

It's interesting, though, that no less a fintech eminence than Sam Bankman-Fried, the billionaire founder and CEO of Mercedes sponsor FTX, suggested in an interview last Monday that Bitcoin’s high maintenance costs and inability to sustain a high volume of transactions means it has no future as a payments network, the purpose originally envisaged. It does, however, have “potential” as a store of value – which will please those who have been using it as such.

Boss of Mercedes sponsor FTX admits Bitcoin has no future as a payments network

Photo by: Steve Etherington / Motorsport Images

The majority of crypto companies involved in F1 are exchange platforms and, as such, are dependent on consumer ardour for the over 19,000 coins currently available. Hence the grab for market space and the investment in advertising within sporting properties. But for how long can it continue? The $60 billion collapse of the ‘stablecoin’ Terra this month, along with its attached digital currency Luna, has sent a chill through the crypto market and wiped further billions from the value of investments. Changpeng Zhao, founder Binance, another company in the F1 sphere, joked in a Tweet on Tuesday that he was “poor again”.

Ultimately the crypto space will mature and find its place within the world, and those platforms who have built market share through their sponsorship activities will consider it money well spent. Perception is all in Formula 1.

Perception counts for much in the wider world, too. In the mainstream crypto space, another speculator, Sina Estavi, recently put up for auction an NFT of Twitter co-founder Jack Dorsey’s first ever tweet. Estavi paid $2.9m for it in March 2021. A year later no one bid more than $6,800. “This is the Mona Lisa of the digital world,” Estavi insisted.

Only if someone else is prepared to pay Mona Lisa money for it…

Brands from the cryptocurrency world have flooded onto the F1 grid, but will they remain?

Photo by: Red Bull Content Pool