Crypto: Why Sebi Banned Celebrity Approvals for Crypto Investments

    The Securities and Exchange Board of India (Sebi) market regulator has suggested that ‘prominent public figures, including celebrities and athletes’ should not endorse crypto products after many first-time investors were slammed by catchy crypto ads by famous Bollywood actors and actresses. last year. Sebi also wants the disclosure of the ads to also speak to a possible violation of laws.
    Crypto is currently not regulated and has been designated as a Virtual Digital Asset (VDA) for tax purposes only.
    In a detailed response to parliamentary committee members’ queries, Sebi said, “Because encryption products are not regulated, endorsement or any other advertised message, oral statement, display or depiction of a name, signature, similarity, or other personal characteristics may be identification of an individual or depiction of the name or seal of any institution or organization that causes the consumer to believe it reflects the opinion, discovery, or experience of the person making such an endorsement.”
    Sebi also said that if crypto assets are not blocked, there is a need for feature-based characterization of the tokenized version of the asset, which could attract oversight from various sector regulators.
    In February, the Advertising Standards Board of India (ASCI) published guidelines for advertising cryptocurrencies in February, and the Ministry of Finance urged SEBI to share its position on such announcements.
    In response, El-Sabi said that prominent public figures should be held responsible for providing such endorsement which is a potential violation of the Consumer Protection Act or any other law.
    According to ASCI guidelines, all ads must carry a disclaimer that says, “Crypto products and NFTs are not regulated and can be extremely risky. There may be no regulatory recourse for any loss from these transactions.” The ad watchdog said the disclaimer should be done in the following manner so that it is prominent and cannot be missed by the average consumer.
    SEBI suggested that the ASCI disclaimer should add potential violations of law in crypto transactions. “Deals in crypto products may lead to prosecution for potential violations 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). SEBI has therefore recommended that famous personalities and celebrities avoid endorsing cryptographic elements and that marketing disclosures include a warning of potential legal violations. The government is concerned about the welfare of citizens who may They are being scammed due to lack of awareness of crypto software As a result, we have come to a point where we need to reconsider our marketing strategy in order to boost awareness among crypto enthusiasts Celebrities are one of the easiest ways to spread information Vijay Praveen Maharajan, founder and CEO of BitsCrunch said: “Advertising should now be designed to highlight issues while also emphasizing the importance of investor judgment.”
    In the past two weeks, the dramatic collapse of Terra (Luna), ranked among the 10 most valuable cryptocurrencies, has wreaked havoc on the lives of investors who fear they will be left homeless after the crypto chaos. In just 24 hours, its market capitalization fell from more than $40 billion to just $500 million, down more than 99 percent. The Terra Luna crash began when the algorithm-based Stablecoins of the TerraUSD cryptocurrency, which pegs itself to the dollar, began to decline. The drop in TerraUSD may have led to a massive sell-off of Terra Luna, which eventually led to a price crash.
    “There are several factors – some specific to the crypto markets and some external, which would have contributed to the most recent downturn. Investors are generally moving away from risky assets like cryptocurrencies as US policy makers tighten the money supply. This has pushed stocks as well. With the price of cryptocurrencies dropping. Then there are also crypto-specific issues that are contributing to the continued decline, such as the loss of the treasury of the $1 peg and the Luna disaster. Many argue that Luna was just a disaster waiting to happen,” said Akshaya Bhargava, Founder and CEO, Bridgeweave. UK-based financial technology company.
    “Bitcoin, Ethereum and other altcoins have been moving in tandem with the stock market. Bearish sentiment on Wall Street has slipped into the crypto markets as well. Just a day after US Federal Reserve Chairman Jerome Powell commented on how 50 basis points should be doing,” he said. Darshan Bateja, CEO and co-founder of Fold, a cryptocurrency exchange company based in Singapore.
    Where is the due diligence?
    “Many innocent retail investors, affected by celebrity endorsements, share all their savings in cryptocurrency and end up losing everything. Celebrity endorsements are by no means helpful in analyzing the risk-return ratio, technology and moreover, all these exchanges are unregulated. The rampant practice will continue. Instead of celebrities, Instagram and TikTok stars will be befriended. However, the government’s intent is right to protect its citizens,” said Abinav Garg, founder of Blocktickets, the world’s first NFT ticket platform for all stakeholders.
    “Given the influence of celebrities on consumers, it is important for consumers to be aware of the risks that these products carry. ASCI Guidelines define how advertisements should be presented to various media. In line with this and in light of consumer and investor protection, SEBI, in its responses to the Parliamentary Standing Committee, suggested, That there should be a ban on celebrities endorsing crypto products, since crypto products are unregulated.”

    What does the law provide?

    At the outset, it can be said that the legitimacy of the cryptocurrency is in a little gray as there is no law regulating or denying its legitimacy.
    “In this case, celebrities or public figures should do their due diligence before advertising cryptocurrencies. This is important so that such advertising does not mislead consumers and/or send any wrong message, but prevents celebrities from endorsing something that is already in use,” she admitted. The government says that it is in use, given their status is a limitation of their rights. Perhaps working toward a framework or guidelines to keep these ads in check and ensure proper due diligence is done is a more fruitful solution,” said Kritika Seth, Co-Founder, Victoriam Legalis – Advocates & Solicitors
    Is a ban really needed?
    “Freedom to trade or do business including advertising (except for what is illegal) is an integral part of Article 19 of the Constitution. In addition, everyone has the right to know and have access to information. ‘Caveat Emptor’ is the main principle of consumer law and it applies equally. Suitable on stock markets that are exposed to frequent risks.In general, investors who enter into the cryptocurrency market are expected to have basic knowledge and research.Mere celebrity endorsements do not attract people to such a risky market.Disclaimer policies and terms and conditions in aid.
    Thus, a ban on celebrity endorsements of cryptocurrency is not required. “No market regulation can be a valid reason because legislative loopholes cannot be balanced against fundamental rights,” said Anushka Arora, director and founder of ABA Law Office.
    Previous examples of celebrity endorsements
    In October 2021, CoinDCX, a cryptocurrency exchange, pressured Ayushmann Khurrana to appear in their advertising campaigns and to address major concerns regarding crypto investments and crypto-related myths. CoinSwitch Kuber, a cryptocurrency exchange that signed Ranveer Singh as a brand ambassador in the same month to attract Generation Z and millennial investors, while Salman Khan unveiled $GARI also in October 2021, a crypto token launched by short video and micro-content app Chingari, along with Along with announcing its collaboration with the app as a brand ambassador for the NFT Marketplace and token rewards program on Twitter.
    Keep in mind: Since the ASCI Guidelines went into effect in April 2022, ASCI has seized violations in four crypto advertisements and 25 advertisements related to influencers on crypto products.