According to some media reports, the capital markets regulator Securities and Exchange Board of India (SEBI) has proposed to Parliament’s Standing Finance Committee that celebrities should not be allowed to endorse cryptocurrencies.
Around two months ago, the Advertising Standards Council of India (ASCI), an advertising industry self-regulatory body established in 1985, issued a detailed set of guidelines that will apply to advertisers and celebrities from April 2022 on how cryptocurrencies or any other virtual digital assets should be promoted . The hype many cryptocurrency exchanges created around these ads last year came home as crypto prices fell sharply this year.
Between November 2021 and now, the price of bitcoin has fallen 47 percent. Ethereum price fell 48 percent. Luna (a crypto coin, not the vintage two-wheeler) lost almost all of its value; Its price fell by almost 100 per cent (from Rs 3,535 to almost zero) during this period.“Investors are moving far away from risky assets like cryptocurrencies as US politicians tighten monetary policy. This has pushed equity and crypto prices lower,” said Akshaya Bhargava, Founder and Executive Chairman of Bridgeweave, a UK-based fintech company. He adds that there are also crypto-specific issues contributing to the ongoing decline, such as: B. Terra’s UST losing its $1 peg and the Luna debacle.
A great lesson for investors who fell for glitzy crypto ads from popular Bollywood actors and celebrities last year is to do your own research. Over the past year, many investors have been buying cryptocurrencies for the first time as crypto prices hit new highs almost daily.
Financial planners call this “fear of missing out” or the FOMO syndrome. Based on rave reviews from influencers on social media, several millennial investors have invested small to large sums in cryptocurrencies. Raj Khosla, founder of MyMoneyMantra, says it’s best to invest less than 1 percent of your net worth in crypto coins if you have to.
Rishabh Parakh, Chartered Accountant and Founder of NRP Capitals agrees. He says investors should avoid investing in cryptos unless they understand how cryptocurrencies work.
Be careful when borrowing and depositing cryptocurrencies
Investing in cryptocurrencies has taken on new colors over the years. For example, many crypto exchanges allow investors to pawn their existing coin inventory and borrow money. Or even offer them the opportunity to earn passive income. Several crypto exchanges in India allow you to make money by lending and depositing coins like Bitcoin (BTC), Ethereum (ETH), Tether (USDT), Dai (DAI), etc.
For example, with ZebPay you can lend for 7 to 90 days. However, at times like these when cryptocurrency prices are plummeting, both of these offerings can come back to haunt you. That’s how it works.
Suppose you have some coins that you are sure you will not sell for months or even years. Meanwhile, their values fluctuate and you earn a paper income. Instead, crypto exchanges allow you to deposit these coins with them and in return offer you a chance to earn 10-20 percent monthly income.
Meanwhile, exchanges can sell your coins and create additional liquidity, which is easier than coin mining; an otherwise complex process to create newer coins using expensive warehouse-sized mainframe computers. These programs typically run for a few years, giving you passive income (interest income) as a depositor. After the term expires, you will get your coins back.
However, here’s the caveat: interest is paid in cryptocoins, not legal currency. If the prices of your coins fall, you lose money. The mechanism works like a bank deposit on which you earn interest, but unlike a bank deposit, which is guaranteed (subject to a certain sum) by the Reserve Bank of India’s Deposit Insurance and Credit Guarantee Corporation, your crypto deposits are not. That’s the other risk. Parakh says that in the meantime, if the stock market crashes or your wallet gets hacked, you could lose all your coins and there is no legal recourse.
Likewise, you can also borrow money by pledging your coins. Again, the value of your pledged coins can drop dramatically within a short period of time. Not only can your exchange (which loaned you money) sell your coins in a hurry, but you would have to make up for the exchange’s loss, in addition to seeing the value of your assets go down.
Salman Khan is not always right!
Manisha Kapoor, CEO and Secretary General of ASCI, tells us that ASCI has become more vigilant about celebrities endorsing cryptocurrencies since last year, when many such ads proliferated. “This is exactly why the ASCI guidelines were introduced. We found that high demands were made and massive returns promised without disclosing the possible downsides of such investments. We know that crypto products have no underlying physical value and are highly volatile. Leading financial experts have voiced their concerns about how cryptos are being valued. And so there is an extremely clear risk that consumers need to be aware of before they invest,” says Kapoor.
She adds that since the guidelines came into effect in April 2022, ASCI has identified violations in four crypto ads and 25 ads related to crypto product influencers. Of course, ASCI does not pre-approve ads; in other words, these ads were already in circulation.
The Indian government has turned its attention to cryptocurrencies since late last year, and particularly since the 2022 budget, when the finance minister imposed a 30 percent tax on virtual digital assets and a 1 percent withholding tax (TDS).
With ASCI’s detailed guidelines on celebrities and SEBI and RBI sharpening their focus on cryptocurrencies (awaiting full legislation), hopefully ads like Ayushmann Khurrana’s CoinDCXFuture Yahi Hai‘ (This is the future) or Ranveer Singh’s commercials for CoinSwitch Kubers ‘Kuch Toh Badlegacampaign is a thing of the past.
Mrin Agarwal, Founder and Director of Finsafe India Private Limited says: “SEBI’s proposal to ban celebrity endorsements for cryptocurrencies is urgently needed. Most of the ads featuring these influencers were misleading and led lay investors to believe their money would quickly grow without risk. Hopefully with the new guidelines there will be some standardization of information.”
What should investors do?
The recent crash in crypto prices did not surprise the savvy and seasoned investor. But those investing in cryptocurrencies for the first time in the past two years got a rough taste of just how quickly they could lose their money.
For those who want to continue their crypto journey despite the risks and lack of regulation, two pieces of advice: “Avoid gambling with cryptos. Only wager the amount you can afford to lose,” says Parakh.
“Book profits often,” says Darshan Bathija, CEO of Vauld, a crypto exchange. Do an asset allocation, but be disciplined.
Comments are closed.