Currently crypto is not regulated and has been named as virtual digital assets (VDA) for taxation purposes only.
In a detailed reply to queries by members of the Parliamentary panel, Sebi, said, “since crypto products are unregulated, endorsement or any advertised message, verbal statement, demonstration or depiction of the name, signature, likeness, or other identifiable personal characteristics of an individual or depiction of the name or seal of any institution or organization which makes the consumer believe that it reflects the opinion, finding or experience of the person making such endorsement.”
Sebi also said that if crypto assets are not banned then there is a need for feature-based characterization of the tokenized version of assets, which may attract supervision of different sectoral regulators.
In February, the Advertising Standards Council of India (ASCI) had published crypto advertising guidelines in February and the Finance Ministry had urged Sebi to share its stance on such ads.
In response, Sebi said prominent public figures should be held responsible for making such endorsements which is a possible violation of the Consumer Protection Act or any other law.
As per the ASCI guidelines, all ads must carry a disclaimer saying, “Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.” Such a disclaimer must be made in the following manner so that it is prominent and unmissable by an average consumer, the advertising watchdog has said.
SEBI suggested that the given disclaimer by the ASCI must add the possible law violations in crypto transactions. “Dealings in crypto products may lead to prosecution for possible violation of Indian laws such as FEMA, BUDS Act, PMLA, etc.”
“Crypto assets are currently unregulated, and SEBI only refers to them as Virtual Digital Assets for tax reasons (VDA). According, SEBI has recommended that well-known personalities and celebrities avoid endorsing crypto items and that marketing disclosures include warning about potential legal violations. The government is concerned about the welfare of citizens who may be defrauded due to lack of awareness about crypto-programs. As a result, we’ve arrived at a point where we need to reconsider our marketing strategy in order to promote awareness among crypto enthusiasts. Celebrities are one of the easiest ways to distribute information. Advertisements must now be designed to highlight the issues while also emphasizing the significance of the investor’s judgment,” said Vijay Pravin Maharajan, Founder & CEO, bitsCrunch.
In the last two weeks, the dramatic crash of Terra (Luna), ranked among the top 10 most valuable cryptocurrencies, has wreaked havoc in the lives of investors who are feared they will become homeless after the crypto mayhem. In just 24 hours, its market cap dropped from above $40 billion to just $500 million, down by more than 99 per cent. Terra Luna’s crash began when the cryptocurrency’s algorithmic-based Stablecoins TerraUSD, which pegs itself against the dollar, started plummeting. The fall in TerraUSD may have led to a large scale selloff of Terra Luna, which eventually resulted in the price crash.
“There are several factors – some specific to crypto markets and some exogenous, which will have contributed to the newest drawdown. Investors generally are moving far away from risky assets like cryptocurrencies as the US policymakers tighten the monetary supply. That has pushed equity as well. as crypto prices lower. Then there are also crypto-specific issues that are contributing to the continued decline, such as UST losing its $1 peg and the Luna debacle. Many argue that Luna was simply a disaster waiting to happen,” said Akshaya Bhargava, Founder and Executive Chairman, Bridgeweave, a UK-based fintech.
“Bitcoin, Ethereum, and other altcoins were moving in tandem with the market equities. The bearish sentiment on Wall Street fell over to the crypto markets as well. Just a day after US Federal Reserve Chairman Jerome Powell commented on how the 50-basis point rate hikes would continue to control inflation, markets reacted by taking a risk-off approach. quick crypto market recovery would be unlikely if the macroeconomic conditions don’t improve,” said Darshan Bathija, CEO & Co-founder of Vauld, a crypto exchange firm, headquartered in Singapore.
Where is the due diligence?
“Many innocent retail investors, being swayed by celeb endorsement, stake all their savings into cryptos and end up losing all. Instead of celebs, Instagram and TikTok stars will endorse. Nonetheless, the intent of government is right to protect its citizens,” said Abhinav Garg, Founder, Blocktickets, the world’s first NFT ticketing platform for all stakeholders.
“Given the influence that celebrities have over consumers, it’s important that consumers are made aware of the risks that these products carry. The ASCI guidelines laydown how the ads should be put out on various media. In line with the same and in view of consumer and investor protection, SEBI, in its responses to the Parliamentary Standing Committee, has proposed that there should be a ban on celebrities endorsing crypto products, given that crypto products are unregulated,” said Chandrima Mitra, Partner, DSK Legal.
What does the law state?
At the outset the legality of Cryptocurrency can be said to be in a bit of gray considering there is no law regulating or denying its lawfulness.
“In that situation celebrities or such public figures must do proper due diligence before advertising cryptocurrencies. This is important so that such advertisement do not mislead the consumers and/or do not project any wrong message, but banning celebrities from endorsing about something that is already in use and is acknowledged by the government that it is in use, because of their status is a curtailment of their rights. more fruitful solution,” said Kritika Seth, Founding Partner, Victoriam Legalis – Advocates & Solicitors
Is a ban really required?
“Freedom to trade or business including advertisements (except illegal) forms an integral part of Article 19 of the Constitution. In addition to it every individual has the right to know and get information. ‘Caveat Emptor’ is the main principle of consumer law and aptly applies to stock markets that are exposed to frequent risks. Generally the investors that enter into the crypto currencies market are expected to have basic knowledge and research. Mere endorsement by celebrities doesn’t lure people into such a risky market.Also the disclaimers policies and terms & conditions are at aid.
Hence, a ban against celebrity endorsement of crypto currency is not required. Non-regulation of the market can’t be a sound reason as lacunae can’t be weighted against fundamental rights,” said Anushkaa Arora, Principal & Founder, ABA Law Office.
Past examples of celebrity endorsements
In October 2021, CoinDCX, a cryptocurrency exchange, roped in Ayushmann Khurrana to feature in their ad campaigns and to address key concerns surrounding crypto investments and myths related to cryptocurrencies. CoinSwitch Kuber, a cryptocurrency exchange signed Ranveer Singh as brand ambassador the same month to lure Gen Z and millennial investors while Salman Khan unveiled $GARI in October 2021 too, a crypto-token launched by micro-content, short video application Chingari, along with announcing his collaboration with the app as a brand ambassador for its NFT marketplace and token reward program on Twitter.
Point to note: Since the ASCI guidelines came into effect in April 2022, ASCI has caught violations in four crypto ads and 25 ads related to influencers on crypto products.