On the slim chance that the growing crypto craze in the country had escaped you, you were probably drawn in in recent weeks.
The crypto universe, in particular crypto exchanges, have zeroed in on India's two biggest passions — cricket and Bollywood, as a way to further popularise cryptocurrencies, which continue to operate in a regulatory black hole in India.
Had you switched on your television set to watch any of the recent IPL matches or the India-Pakistan encounter this weekend, then you know what we mean.
“Yeh Bitcoin Bitcoin apun ko samajh nahee aate re; Bahut hard hai,” says a young actor, who goes on to rap the message.
“Bahut hard kuch nahee hai,” retorts Ranveer Singh, channeling his persona from super hit film Gully Boy. He goes on to demonstrate a crypto exchange app and ends by saying, “Lag ja re, kuch toh badle ga!”
Translation — Take to crypto, it can change your life.
A few overs later, another crypto exchange hits your screen with its message. This one more direct. It says you can expect four times the return on a regular fixed deposit if you use products promoted by the exchange. One of the products this exchange offers is a “fixed income plan” for cryptocurrencies. Users can lock-in their cryptocurrencies for a certain period and get principal plus interest thereafter, the exchange promises.
Yet another newspaper advertisement for a crypto exchange screams "safe hai" with an ISO certification stamp added for good measure. Whether it is talking about the exchange or crypto is left up to your interpretation.
For those eyeing NFTs or non-fungible tokens, you'll likely see a host of mega stars offer fans their collectables ranging from audio recordings to video and more. Salman Khan has already done it. So has Amitabh Bachchan. Where these mega stars go, more will follow.
Akkhi public CoinSwitch pe. Bhai ke saath!
Download #CoinSwitch, chote. Kyuki, aaj nahi toh kal: #KuchTohBadlega! @RanveerOfficial #RanveerXCoinSwitch pic.twitter.com/4QHgejX0ZAAs hair-raising as these advertisements and products may seem to traditionalists, it is futile to point a finger at the exchanges throwing these inducements at customers. They have a product. An unregulated one. And they are hard-selling it.
Instead, maybe we should point to policymakers who have allowed the regulatory gap to linger.
The Reserve Bank of India tried to effectively ban cryptocurrencies in 2018 but the Supreme Court threw out the circular on grounds of proportionality. The government then prepared a bill called The Cryptocurrency and Regulation of Official Digital Currency Bill which was intending to prohibit all private cryptocurrencies in India. But the government did not table it in Parliament.
Since then, reports have emerged that the government is reviewing it.
Frankly, the government doesn't need to reinvent the wheel. It has only two choices — to ban or to regulate. If it chooses to regulate, some templates are emerging globally that can be followed.
Reining In Advertising
Take, for instance, the issue of advertising around cryptocurrencies. India isn't the only geography that has seen borderline misleading and high impact advertising around cryptocurrencies.
In March this year, the United Kingdom's Advertising Standards Authority asked that an ad from a cryptocurrency exchange be withdrawn on grounds that it was misleading. The detailed order from the regulator highlights what aspects it found objectionable.
First, while this ad did have the standard rushed or tiny font disclosure on risk, the ASA found this to be inadequate.
Second, this ad suggested that investing in bitcoin is an alternative to holding funds in a bank or in regulated financial instruments. The ASA took objection to this.
Third, it noted that the ad was published in a regional daily, targeting audiences that may not be familiar with the characteristics of cryptocurrencies.
Since then, the UK authority has signaled via an interview in the Financial Times that it sees cryptocurrency ads as an area it intends to watch closely.
Should some of these benchmarks — the nature of the audience, the description of the product and adequate risk disclosures — be applied to crypto advertising on Indian screens right now, many may fail the test.
So far, though, except for the Delhi High Court calling for improved advertising standards and disclosures, little has been done to rein in aggressive crypto advertising in India.
Regulating The Product
Beyond advertising, comes the trickier issue of product.
Since the RBI's concern around financial stability was dismissed, leaving it red-faced, the central bank is understandably maintaining a hands-off approach, at least publicly. It is continuing to alert banks that they need to ensure KYC, anti-money laundering processes are in place when they deal with cryptocurrency exchanges and customers, and in doing so, it may slow the crypto march to some extent.
If the RBI is not regulating these tokens, who then will do it?
In a number of large countries, including the United States, indications are that the onus will fall on securities regulators.
In August this year, U.S. Securities and Exchange Commission chair Gary Gensler called on Congress to give them more powers to regulate the “wild west” of crypto assets.
While not formally regulating crypto assets yet, the SEC has already intervened from time to time. They have stepped in to block initial coin offerings since way back in 2017. More recently, the regulator has seen some high-stakes battles with crypto companies.
Last month, crypto exchange Coinbase had to discontinue plans to launch a ‘lend' feature on its exchange where it allows customers to earn interest on coins. The SEC sent a legal warning to the exchange, Bloomberg reported. Following this, the company put the feature on hold at least temporarily.
In December 2020, the SEC filed action against Ripple Labs Inc. and two of its executives alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering. Ripple didn't take this lying down and the matter is in court.
Gensler, in his remarks to the U.S. Congress, had detailed why he thinks the SEC should be given more powers to regulate the crypto ecosystem.
First, he believed the commission's investor protection mandate should extend to crypto assets.
Second, he argued that many of these token are sold as securities.
Third, he argued that a platform trading these securities or offering loans against these securities (as in the case of Decentralised Finance or DeFi platforms), should also fall under the purview of the SEC.
Right now, large parts of the field of crypto are sitting astride of — not operating within — regulatory frameworks that protect investors and consumers...Gary Gensler, Chairman, U.S. SECSimilar concerns and benchmarks for regulation may apply to other jurisdictions, including India.
Money Laundering Concerns
The final aspect where a hawk eye needs to be maintained is on concerns around money laundering via cryptocurrencies.
Here, it looks like some agencies, like the Enforcement Directorate, are keeping a watch. We say this because a recent transparency report from one of the cryptocurrency exchanges specified that it had blocked a number of accounts due to such concerns.
To what extent and how systematically agencies are looking into this aspect is unclear.
The taxman has also been sniffing around and wondering around how to tax cryptocurrency gains, the Economic Times reported.
If Not Ban, Then Regulate. Now.
The sum and summary is this – crypto seems here to stay and crypto exchanges are spending big to make sure more consumers get attracted to it.
Globally, the value of these assets is estimated at close to $2.7 trillion and India is one of the fastest growing crypto markets.
It is too big to ignore. If we don't ban it, regulate it we must. The ostrich approach will no longer fly.
Note: This column has been corrected to reflect a statement from Amitabh Bachchan saying that he is holding back a planned association with a crypto exchange till there is clarity on its legality.
Ira Dugal is Executive Editor at BloombergQuint.
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