Are you missing out on “the biggest financial revolution in modern history which will forever change the way monetary transactions are executed?” Or you may be falling prey to an orchestrated sales pitch by the crypto industry to make a very risky investment.

Research shows that those who plunge into uncharted trading territory and manage to encash in time, often make serious money—the Bitcoin billionaires are an example. But a majority of ordinary people are late entrants, carried away by anecdotal success stories and the promise of easy riches, only to end up as losers.

Almost every day, Moneylife receives press releases or pitches for ‘native advertisements/sponsored posts’ offering significant payments for two kinds of businesses—gaming and crypto currencies. While we say no to the possibility of misleading readers for money, a majority of publications and advertising avenues have no such qualms—least of all organisers of cricket matches. Social media may have questioned crypto currencies dominating advertisements during cricket matches, but cricket control boards probably feel protected by the politicians across parties who dominate and control them and so they eagerly court these dubious sponsors.

The government’s stubborn reluctance to ban or regulate the spread of crypto currencies through advertisements, paid-influencers and content marketing, to create the same cult-like mania promoted by multi-level marketing (MLM) companies and pyramid scheme operators, tells its own story.

The finance ministry has been silent about the exaggerated returns and fake claims by crypto exchanges and its issuers. This is happening with the tacit support and, perhaps, active participation of powerful politicians. The Reserve Bank of India (RBI) had signalled its discomfort over cryptos and banned banks from holding or facilitating these currencies. But this order has been set aside by the Supreme Court (SC). 

Normally, the government would have moved quickly to bring in legislation to back RBI’s action. Not this time. Not even when crypto supporters are issuing full-page advertisements to say that Indians have already invested Rs6 lakh crore of crypto assets and they want a regulated investment environment. A crypto maker claims that the ‘market–cap’ of tokenised currency has touched the US$3-trillion mark on unregulated crypto exchanges flourishing in India, while a media report proclaims that 105 million Indians have invested in some form of digital currency.

Any move to regulate cryptos ought to be preceded by a clear stand on whether India wants to recognise tokenised currency, clarity on its safety and its backing (while paper currency is backed by the government’s promise to pay, cryptos have no such backing) and eligible issuers. Instead, under the global mania over crypto currency and its apparent adoption by several countries, India has chosen to remain silent. While countries, such as China and Singapore, initially supported it, they too seem to be having second thoughts.

Crypto investors must realise that regulation alone does not guarantee anything—least of all protection from losses. And, when things go wrong, looking to the judiciary for help is also futile.

Consider two of the most egregious examples of the past three decades. PACL or Pearls, a Ponzi scheme operating in India since 1997, which successfully gamed the system until 2016, raised nearly Rs50,000 crore in principal. In 2016, a committee was set up to supervise distribution of funds recovered from Nirmal Singh Bhangoo and family which ran PACL; but, by April 2021 only Rs438 crore was distributed to 1.27 million victims.

Then there is the Sahara Pariwar, which was allowed to raise over Rs1 lakh crore through four Ponzi-like cooperative societies that could spread their tentacles across India, even as the founder, Subrata Roy, was involved in a high-profile litigation with the Securities and Exchange Board of India (SEBI) in connection with two realty companies that had illegally raised funds without regulatory clearance. A path-breaking SC order in August 2012 led to Sahara pariwar depositing Rs15,500 crore with SEBI, which was to be returned to investors under supervision of a retired SC judge.

Nine years later, SEBI cannot find most of the investors, since they were forced to convert to other investments like deposits in the cooperative societies. So, SEBI is sitting on these massive funds, while Sahara has begun to default on payments since late-2019 (read Sahara Refunds: Did the SC Want SEBI To Sit on Rs15,448.67 Crore for a Decade?).  Subrata Roy was jailed for two years for contempt of court and the trial remains caught up in the ‘tareek pe tareek’ process of endless new dates.

Depositors, who have been left high and dry, are holding protests across India; but, despite the involvement of Rs1 lakh crore, there isn’t enough political heat to set up a time-bound investigation. Most politicians across the political spectrum, having enjoyed Sahara’s largesse, get away with their silence.

While we sympathise with their plight, it is important to remember that every single depositor who is angry today had ignored all warnings and concerns leading to the incarceration of Subrata Roy and continued to deposit money with the organisation from 2012 (when SC issued a path-breaking order against Sahara) right until 2019. It is something that crypto investors may have to be reminded about in the future.

The fund-raising spree by collective investment schemes (CISs) 15 years ago holds another lesson for those who want to learn from the past. Names like MPS Greenery, Alchemist and Saradha were all controlled by politically powerful people, including members of parliament (MPs), and actively endorsed by film and sports stars. Do the similarities ring any alarm bells? Readers in their sixties and above may also recall Ponzi schemes masquerading as plantation companies in the mid-1990s, where people lost thousands of crores of rupees. Many poor and vulnerable people, who borrowed to reap quick returns, ended up repaying debt to local moneylenders for over a decade, in addition to losing the original investment.

Impressionable youngsters of today, who have no memory of previous scams, are lured into investing, thanks to speed of persuasive messaging through social media, because there is no regulation to protect them.

The Crypto Sales Pitch

Crypto exchanges claim that ‘the growth of crypto assets across the globe testifies’ to the growing excitement over ‘decentralised finance and non-fungible tokens and meme coins’. The pitch was probably the same during the tulip mania (of the 17th century), the South Sea bubble (18th century) and the dotcom bubble (at the turn of the 21st  century); they all promised a new world and a new reality. In fact, anonymous decentralised tokens have been quickly adopted by organised crime and terrorist organisations, hardly making them the bright new hope of the future.

Inherent contradictions about crypto claims are ignored around the world as are experts who dare to speak out. In a series of tweets in July, Jackson Palmer, a data scientist and engagement marketing expert (@ummjackson) based in San Francisco, succinctly highlights all that is worrying about cryptos. He tweets: “After years of studying it, I believe that cryptocurrency is an inherently right-wing, hyper-capitalistic technology built primarily to amplify the wealth of its proponents through a combination of tax avoidance, diminished regulatory oversight and artificially enforced scarcity.” Further, he says, it takes “the worst parts of today’s capitalist system (e.g., corruption, fraud, inequality) and uses software to technically limit the use of interventions (e.g., audits, regulation, taxation) which serve as protections or safety nets for the average person.”

And, contrary to claims of decentralisation, Palmer says, the crypto industry is controlled “by a powerful cartel of wealthy figures who with time, have evolved to incorporate many of the same institutions tied to the existing centralized financial system they supposedly set out to replace.” The last bit explains the push to legitimise and regulate cryptos even there is no clarity on risk and its mitigation.

While the crypto industry is pushing for ‘regulation’, some like Sudhir Mehta, of Pinnacle Industries and president of Mahratta Chamber of Commerce Industries & Agriculture, calls it ‘unregulated gambling’ that targets low-income groups with get-rich schemes. He says allowing self-regulation of cryptos will cost millions of Indians their livelihood. While cryptos are allowed to run amok, manufacturing continues to be shackled by over-regulation that includes inane but extortive laws like whitewashing of toilets (even if fully tiled)!

In fact, crypto bubbles and frauds have been surfacing with regularity. But these reports, usually in the form of social media posts and independent digital media publications, are drowned out by the marketing blitz and paid coverage orchestrated by the crypto industry. Clearly, cryptos are an unknown territory and any experimentation should be restricted to money you can afford to lose without whining. Let me end by quoting @ummjackson on the lop-sided discussion about cryptos “…these days even the most modest critique of cryptocurrency will draw smears from the powerful figures in control of the industry and the ire of retail investors who they’ve sold the false promise of one day being a fellow billionaire. Good-faith debate is near impossible.” I expect a similar hysterical and motivated response to this column as well.

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