On February 23, the Advertising Standards Council of India (ASCI) released a set of guidelines for advertising cryptocurrencies and non-fungible tokens (NFT). The guidelines mandated that all advertisements for virtual digital assets should say crypto products and NFTs are unregulated and can be highly risky.
“There may be no regulatory recourse for any loss from such transactions," said the ASCI guideline. Crypto, NFT ads should carry these guidelines prominently visible to the average consumer. ASCI said in a statement that these guidelines have been formed after extensive consultations with stakeholders including the government and the industry.
The ASCI guidelines are not entirely unexpected. According to top bankers and central bank insiders, the unchecked spread of crypto-related advertisements had caused concerns to the regulator as more investors were drawn into these high-risk, unregulated instruments without understanding the associated risks. The RBI is equally worried about the macroeconomic risks arising from the crypto transactions.
Approximately 10 days ago, a top Reserve Bank of India (RBI) official publicly called for a ban on cryptocurrencies. Launching a strong attack on cryptocurrency, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar on February 14 said banning cryptocurrency is "perhaps the most advisable choice open to India".
Even before this, RBI Governor Shaktikanta Das had cautioned investors about gambling in cryptocurrency in strong words. While speaking at the post-monetary policy presser, Das asked investors to be cautious while investing in cryptocurrencies.
“I think it is my duty to tell investors that what they are investing in cryptocurrencies, they should keep in mind that they are investing at their own risk. They should keep in mind that these cryptocurrencies have no underlying (asset). Not even a tulip,” Das said during the MPC press meet.
The central bank’s concern seems to be reflecting in ASCI’s statement. “Advertising for these products has been very aggressive over the past few months. The ASCI noted that several of these advertisements do not adequately disclose the risks associated with such products," the statement from the body said.
"We had several rounds of discussion with the government, finance sector regulators, and industry stakeholders before framing these guidelines. Advertising of virtual digital assets and services needs specific guidance, considering that this is a new and as yet an emerging way of investing. Hence, there is a need to make consumers aware of the risks and ask them to proceed with caution," Subhash Kamath, Chairman of ASCI said.
On its part, the RBI has been making all efforts to highlight the risks associated with cryptocurrencies and warn the government and the common investors.
On February 14, Sankar cautioned that cryptocurrencies are akin to Ponzi schemes saying these are not amenable to definition as a currency, asset or commodity. “They have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse.
“These should be reason enough to keep them away from the formal financial system,” he said.
Thus, the ASCI action reflects the concerns of the banking regulator on cryptocurrencies and comes after the government indirectly acknowledged the existence of crypto by making it as a taxable asset in the last Union Budget.
Despite the central bank's caution, there has been an increase in the number of people investing in crypto hoping for quick returns. There are no accurate official estimates available on the number of crypto investors in India or the quantum of money involved. But, the number is significant. The government's move to tax crypto was dubbed by the crypto lobby as a step closer to legalising the instrument. This campaign too lured fresh investors into betting on such assets.In this context, the RBI warnings and the ASCI curbs come as a strong reminder to the crypto investors on the high-risk nature of these instruments. Logically, the RBI’s concerns seem to have influenced the ASCI decision.