Cryptocurrencies have seen an exponential increase in its adoption in India, post the ban being lifted by the RBI in 2020.
The widespread adoption of digital tokens by millennials and Gen-Z is assisting the industry in emerging from the shadows, a far cry from 2018 when investors had to rely on a P2P mechanism to purchase cryptocurrencies in the country.
In the current day, cryptocurrencies are emerging as a front runner among investment classes for the tech-savvy young generation. Having said that, controversies have always shrouded the widespread acceptance of cryptocurrencies.
Since the beginning of May 2022, the crypto market capitalization has dropped from $1.8 trillion to $1.24 trillion, which is more than 30 percent drop. Several factors led to the crypto market fall – some specific to the crypto market and some endogenous.
The general market sentiment post the Luna crash on top of the stricter tax regulations has dampened the spirit of the crypto retail investors. To add to this, the recent announcement by SEBI recommending prominent public figures like sportsmen, movie stars and popular television actors to refrain from promoting cryptocurrencies or any of its derivative products has hit the industry further.
SEBI blacklists star power from endorsing crypto
The Securities and Exchange Board of India (SEBI) has warned celebrities, athletes, and others with prominent star power from endorsing cryptocurrency products in any commercial form. In addition, the companies putting up ads for crypto also need to put up an advertisement disclosure talking about the possible violation of laws. These recommendations come as an extreme step towards vocalizing their dislike for the asset class.
SEBI informed a parliamentary panel that any notable public figure must be held accountable for making endorsements that result in a probable breach of the Client Security Act or another such rule. SEBI further suggests rewording the disclaimer messages by Advertising Standards Council of India (ASCI) for digital assets by adding “dealings in crypto products may lead to prosecution for possible violation of Indian laws such as Foregin Exchange Management Act (FEMA), Banning of Unregulated Deposit Schemes (BUDS) Act, Prevention of Money Laundering Act (PMLA), etc”.
Is the ban required?
Under Article 19 of the Constitution of India, it states, ‘Freedom to trade or business including advertisements (except illegal).’ Every person has the right to know and obtain information. Caveat Emptor is the primary principle of consumer law, and it applies perfectly to stock markets, which are constantly exposed to hazards.
In general, investors who enter the cryptocurrency markets are expected to have a basic understanding and conduct research. Celebrity endorsements alone will not entice people to enter such a dangerous sector. Furthermore, the disclaimer policies and terms and conditions are available to assist.
As a result, a prohibition on cryptocurrency endorsement is unnecessary. Non-regulation of the market cannot be considered a valid argument, as legal gaps cannot be balanced against fundamental rights. The celebrities endorsing any products/services may have an influence on the public at large but banning them from endorsing such products requires a strong backing of valid reasoning.
What does it mean for the crypto industry?
Cryptocurrency companies were some of the biggest advertisers in 2021, especially in the Indian Premier League (IPL). Popular Bollywood celebrities like Ranveer Singh, Ayushmann Khurana and Amitabh Bachchan were roped in by top crypto exchanges to advertise their offerings. However, there continued to be ambiguities around these advertisements leading to most staying away from IPL 2022.
Since these regulations do not categorically specify who a celebrity is, exchanges have had to strategically move towards online influencers. There are multiple content creators who create ‘fin-tainment’ content, educating people about crypto markets, promoting various crypto brands and offerings through short-form content on Instagram and Youtube.
Banning endorsements by star power
Some industry thought leaders believe that celebrities or renowned personalities do not influence investment decisions, while others believe that the government has been rash to take such action. A regulatory-guided, holistic approach to the sector will be the best way forward for customers and the industry. Also, celebrities should be advised to do their due diligence before endorsing any particular cryptocurrency or its derivative product.
Generally, neither the Advertising Standards Council of India (ASCI) nor the SEBI have the jurisdiction to prohibit celebrities from endorsing items as the power is entirely in the hands of the government. And yet, this guideline from SEBI has raised several eyebrows, and at the same time, put forward a sense of warning around this emerging asset class.
(Srivar Harlalka is Co-Founder, flippy-social crypto investment platform. Views are personal)