India has no legal framework to regulate cryptocurrency. So, what’s up with all the ads?

“Bohot hard kuch nahi hai. Sab simple hai. Lag ja re bacche CoinSwitch pe. Kuch toh badle ga.”

Nothing is very hard, everything is simple. Get on CoinSwitch and something will change.

If you believe Ranveer Singh’s recent ad for CoinSwitch Kuber, a cryptocurrency exchange platform, crypto is the future and the future is simple. Playing across TV channels and OTT platforms for the past three weeks, the ad shows Singh in his Gully Boy avatar encouraging a group of Mumbai’s bhais to invest in the crypto platform.

Singh’s not the only one to have jumped onto the crypto ad bandwagon. On a video app called Chingari, Salman Khan has been hard at work promoting $GARI, a crypto token, while Ayushmann Khurrana has been touting CoinDCX with the catchphrase “Safe hai, simple hai”.

Earlier this year, Amitabh Bachchan withdrew as CoinDCX’s brand ambassador, writing that “the thought for me was that if things were to go wrong then the target of blame would come on me.” Incidentally, the Big B’s other major role is being the brand ambassador of the Reserve Bank of India.

Cryptocurrency is not regulated in India. Already a high-risk product, this makes it even more volatile. Yet consumers are flooded with full-page ads and shiny campaigns featuring their favourite stars, urging them to invest. You’ve got Tanmay Bhatt on YouTube, Nikhil Chinapa on Instagram, and Kunaal Roy Kapur on your TV set. Last week’s India-Pakistan cricket match was telecast alongside a plethora of ads for cryptocurrency.

So, what’s going on?

According to broker discovery and comparison platform BrokerChooser, India has the highest number of crypto owners in the world – 10.07 crore. The US comes in second, with 2.74 crore, followed by Russia at 1.74 crore and Nigeria at 1.30 crore.

Cryptocurrency prices can soar or plummet within hours. Ten days ago, a “play-to-earn” cryptocurrency inspired by the South Korean dystopian show Squid Games came out and according to its white papers, presale Squid tokens sold out within a second. The Squid token is up by 75 thousand percent this week, according to CoinMarketCap, a market analysis agency, which also issued a warning about the need to exercise caution while trading as it had got multiple reports that people were unable to sell the Squid token.

The lack of regulation also means there is no protection for investors against the volatility of cryptocurrency or fraud.

In 2018, the RBI had banned banks and other regulated financial entities from dealing with clients who handle private cryptocurrencies such as Bitcoin. In March this year, the Supreme Court stepped in and overturned the order, saying that under existing law, the RBI does not have the power to restrict individual dealings in cryptocurrencies.

Rumour now has it that the Indian government might bring in a law to regulate cryptocurrency in the 2022 budget. Meanwhile, the ads run free, accompanied by fine-print disclaimers about market risk. If you blink, you’d miss it.

Disclaimers provided by advertisements are often tiny, quick, and missable.

Anirban Bhattacharyya, partner at Shardul Amarchand Mangaldas, said that in the absence of formal regularisation, cryptocurrencies are essentially assets.

"From an Indian regularisation perspective, it is as good as buying or selling any goods online," he said. "But these are assets that have a certain value that's going up and down and there is trading happening. For all practical purposes, these are securities, except there are no bodies like SEBI or RBI treating them as such."

Bhattacharya said that there is far more visibility and transparency in other investment vehicles such as mutual funds because there are regulations that set out exactly how these entities are supposed to function, whereas there is no visibility in how cryptocurrency exchanges function.

“You're attracting investors with the promise of an asset that is suddenly seeing an uptick in a short period of time. Cryptocurrencies have suddenly seen a huge surge of retail investment and that is mostly goaded by advertisements, celebrity endorsements, and the huge uptick in returns," he said. "This automatically becomes something which is leading retail investors to believe it is a means to make a quick buck, without being aware of the risk factors involved.”

He said that the level of disclosures given for cryptocurrencies and their ads is non-transparent, which substantially increases the risk factor for retail investors looking to make a quick buck.

“Given the huge liquidity that has happened, it is exposing investors to the kind of risk they may not have taken if they had the right risk factors placed before them. It may not dissuade someone from investing, but it would ensure that when they do, they have the correct information to invest,” Bhattacharya explained. “This correct information is what the protection given by regulation in a normal security scenario by SEBI, RBI etc, would bring in. This is what is missing in cryptocurrency as we see it today.”

Sagar Sood, the business head at Voxxy, a global influencer marketing firm that handles cryptocurrency exchange clients, said there’s “cut-throat competition” now because there are “limited influencers who talk about cryptocurrency”.

“Earlier, there was a problem of brand endorsements by crypto as nothing was acknowledged by the government,” he said. “Now, despite the fact that it is still not regulated, the industry has started accepting it and everyone is joining the trend.”

But what about the disclaimers? Ads for stock market apps cite regulations by the Securities and Exchange Board of India, but there’s no such board for cryptocurrency right now. Sood said this is a “challenge”.

“Even if individual crypto apps have tie-ups with some international partners where the amount you invest is secure, you can’t publicly go around saying it – at least not in broadcast and print,” said Sood.

Legal status of ads

Section 89 of the Consumer Protection Act 2019 states that a manufacturer or service provider involved in a “false or misleading advertisement” that is “prejudicial to the interests of consumers” faces imprisonment up to two years and a fine up to Rs 10 lakh.

This applies to all ads, cryptocurrency included.

In July 2021, the Delhi High Court issued notice to the centre, SEBI, and cryptocurrency exchanges in a plea seeking guidelines to regulate the advertisement of cryptocurrency asset exchanges in India. The petitioners sought guidelines mandating that the disclaimer text cover 80 percent of the screen, with a slow voice-over lasting five seconds.

The plea also prayed that the union ministry of information and broadcasting should prevent more audio-visual ads from being aired on television until the above guidelines are issued.

The Advertising Standards Council of India, a self-regulatory body, has general guidelines for ads, though none specific to cryptocurrency. Manisha Kapoor, the council’s secretary general, told Newslaundry that the current guidelines indicate that ads cannot mislead, misguide, give false information, or exploit a consumer’s lack of expertise on a subject.

“Cryptocurrency is an emerging area,” Kapoor said. “The ASCI is examining how to protect consumer interest. We are consulting with various stakeholders on the best way to make advertising for this sector more transparent.”

While there are no government restrictions on cryptocurrency products or ads, Kapoor added, the fact that the market is unregulated poses certain risks.

“Advertisers and celebrities need to exercise due diligence in terms of what is being promoted,” she said. “Transparent communication of risk is critical along with some other factors, to ensure that consumers understand what they are buying into.”

Other countries have had these issues too. In May, the UK’s advertising regulator banned an advertising campaign by Luno, a cryptocurrency app, for being “irresponsible and misleading”. The ad, splashed across London buses and the Underground, had a cartoon image of a Bitcoin with the following text, “If you’re seeing Bitcoin on the Underground, it’s time to buy.”

The country’s Advertising Standards Authority, which had received four complaints about the ad, had said that Bitcoin investment was “complex, volatile, and could expose investors to losses and considered that stood in contrast to the impression given by the ad, that investment was simple and conventional.”

Meanwhile, China, which was one of the largest cryptocurrency markets in the world, recently declared all cryptocurrency transactions, including Bitcoin, illegal. Cryptocurrency is also banned in Turkey, Morocco, Bangladesh, while being restricted in Russia and Egypt.

Ads on cryptocurrency and its ilk were also banned on Facebook and Google until 2019 and 2021, respectively, after which the ban was “loosened”. In July, TikTok updated its branded content policy to ban all financial services and products, including influencers promoting cryptocurrency, sharing trading, and buy-now-pay-later schemes.

Most ads do come with disclaimers, but they’re easy to miss, appearing at the bottom of the ad or for a few seconds at the end of it. At the end of the ad for CoinSwitch Kuber, for instance, in text smaller than “download the app now”, are the following lines: “Cryptocurrency is an unregulated digital asset, not a legal tender and subject to market risks. All investments are subjected to price fluctuation risk. CoinSwitch Kuber does not guarantee any assured returns or profit.”

This sounds like par for the course for any product subject to market vagaries, but when the entire sector is unregulated, does this change?

Nischal Shetty, the founder of WazirX, India’s largest cryptocurrency exchange, said there is an urgent need to regularise cryptocurrency in India.

“The problem with the fact that it is not regulated is that there are both good and bad actors that can grow in the region,” he said, adding that the best way to push for regulations is by following existing laws and guidelines.

“When we experimented with ads, we realised that 10-15 seconds is not enough to explain crypto to people; it could get the wrong message across,” he said.

So, WazirX is now focusing on ads that are educational. “Right now, when people see ads, they think it’s about getting rich quick, especially in a full market like this,” Shetty said. “Regulation is needed because without that, there’s technically nothing that stops people from carrying ads in a certain way.”

Update: The name of Voxxy's client has been removed to maintain anonymity.