The murky crypto corner of Indian YouTube

Good Morning! A big hello to readers who signed up this week. This is The Signal’s weekend edition. Before we get to today’s story, we want to share an exciting news. Our co-founder, Venkat Ananth, has been invited to join an international media consortium that is reviewing the disclosures made by Facebook (now Meta Platforms) whistleblower, Frances Haugen. The Intersection has also entered into a collaboration with The Hindustan Times to co-publish our stories. The first in the series will be published on Monday in a special issue. Do not forget to check your email. The Signal will be back on Tuesday.

Our story today by guest writer Mithun MK is how YouTube influencers are in the thick of things in India’s crypto market, often spreading information that is dubious and luring investors into a lawless domain plagued by schemes and scams. Also in today’s edition: the best reads from the week. Happy weekend reading.

“How did this man earn $80,000? Come, I will explain that to you in detail," Prashant Bajpai, a digital affiliate marketer and graphics designer, tells the 3,900 subscribers to his YouTube channel. Bajpai introduces them to Forsage, which, he says, is a decentralised networking platform based on blockchain technology. In a few minutes, the YouTuber has his audience hooked with Internet buzzwords and the lure of easy money.

Investors on Forsage could buy Tron and Ethereum coins and earn through referrals. New investors could earn tokens as gifts for completing a set of tasks. In March this year, Forsage was issued a cease and desist order in the US by the Montana Commissioner of Securities and Insurance Office. Forsage was found to be violating sections of the Montana Securities Act pertaining to pyramid schemes.

Forsage is authentic, insists Bajpai, but admits “it's a money circulation system". The Intersection pointed out to him that money circulation schemes are banned in India and asked why he doesn’t explain that to his subscribers. He replied, "In India, a lot of things are banned, but the Indian government doesn't say anything. This is India. Here gutka [processed betel nuts] packets are also banned but you still get them everywhere."

The Indian cryptocurrency trade is largely driven by messaging platforms such as Telegram, WhatsApp and Discord and social media influencers. YouTube, which has over 459 million users in India, is the central cog in this wheel. YouTube influencers do not require regulatory licenses and merely shelter behind a stock disclaimer that they are not financial advisers.

Indian lawmakers’ lethargy in designing a legislative framework has led to the wild growth of this ecosystem through which allurements and fake information flow unhindered. Not just crypto regulation, India does not have meaningful social media rules or strong data protection and privacy laws. Although the Reserve Bank of India had prohibited crypto trading in April 2018, the Supreme Court lifted the ban in March 2020, just as the world was going into an unprecedented pandemic-induced shutdown. Between June 2020 and July 2021, the Indian cryptocurrency market grew 641%, according to a Chainalysis report.

The influence

Budhil Vyas, a data scientist, started a YouTube channel three years ago with a focus on crypto trading and price movements. Vyas also runs several Telegram groups. His channel, Crypto Talks has over 42.3K subscribers. YouTube channels like his—offering videos in multiple languages—have proliferated in recent years. Besides promoting crypto trading apps, referral programs, airdrops, and coins, influencers such as Vyas provide market analysis and news about the sector.

Whenever a new crypto coin is created, YouTube influencers are the go-to people to promote it to new investors. The company behind these new crypto coins — also referred to as altcoins — aims to get them listed on price-tracking websites such as CoinMarketCap and CoinGecko, to name a few. Getting listed helps gain authenticity and investors.

“You have to approach a YouTuber to gain traction. How else will you get an audience for investing in the coin?” asks Vyas. “When a YouTuber with a large subscriber base promotes a crypto coin, a lot of people tend to buy it.”

The influencers use social media and messaging platforms such as TikTok, Discord, Telegram, WhatsApp, and Instagram for amplification.

Their reach extends to even small towns and remote villages. Ashwin Saraaf, a 30-year-old ICICI bank employee from Gurgaon village in Madhya Pradesh lost Rs 1.2 lakh in Dogecoin trades. He was swayed by Tesla CEO Elon Musk’s tweets and validated by a YouTuber, Saraaf, who mostly sources investment advice from Instagram, Telegram, and YouTube, told The Intersection.

Vyas explains how he was part of a YouTube promotion that helped build the market for Hamster. He believes if those backing a coin persist with promotions, it's a sign of a genuine token. Twitter CEO Jack Dorsey promoted Hamster too. “I keep track of how the Hamster performs in the market, subscribers may have bought the coin based on my advice. I have to keep them informed,” Vyas adds.

Unknown to investors joining crypto groups on Discord and Telegram, there is a well-set system of promoting investment instruments in exchange for payment. The influencer marketing industry in India is pegged at $75 million to $150 million by digital marketing agency AdLift. Influencers get ₹20,000 to ₹1 lakh per video based on their subscriber pool and number of hits. Some also peddle crypto pyramid schemes, suspicious apps, and fake crypto coins. Sometimes they themselves fall for scams.

In his early days as a YouTuber, Vyas promoted Savetobuy coin. The promoter of the coin vanished with $6,000 of investors’ money. Vyas ended up repaying his subscribers for the losses they suffered and didn't get paid for his videos either.

The guidelines for 'Influencers Advertising on Digital Media Platforms’ to be followed by YouTubers came into effect on June 14, 2021. Following it, however, is voluntary and not many have even heard about it. This is not to paint all influencers with the same brush. There are many who are providing good information to investors. But there is no mechanism for users to distinguish between the genuine and fake ones.

YouTube does have a paid promotions policy. The platform allows creators to include paid product placements or endorsements as part of their content. But YouTubers are supposed to self-report if the videos include paid product placement, endorsements, or other commercial relationships. The platform then facilitates a disclosure to users. However, many influencers do not disclose it. Providing misleading information about products, services, or businesses is a violation of the platform’s ad policy. A questionnaire sent to YouTube remained unanswered at the time of publishing. We will update this story when we get the responses.

Misinformation exchange

There are two types of scams rampant in the Indian crypto space, says Sharan Nair, Chief Business Officer, Coinswitch Kuber. One is fake coins such as Savetobuy or the infamous Squid coin, a pump-and-dump scheme that piggybacked on the popularity of Netflix’s Korean blockbuster Squid Game. The second kind is fraudulent schemes promising exceptional returns. Almost all of them are fueled by a combination of YouTubers and a network of Telegram and WhatsApp groups, Nair says.

“Exchanges don't list such coins. Scammers list the coins on their own websites,” Nair told The Intersection. Lack of any guidelines means Indian exchanges wait for cues from foreign counterparts. “Our investors are retail investors who put money into crypto in the form of SIPs and treat it as an asset class. So we are careful about the coins we list," he says. But following overseas exchanges also means copying their mistakes.

About five exchanges dominate the crypto exchange market measured by app downloads: Wazirx, Coinswitch Kuber, Zebpay, Bitbns, and CoinDCX. Some reports have suggested that India has about 100 million crypto users, but others say a more realistic number could be 20 million.

Recently, crypto exchanges took out front-page advertisements and flooded Indian TV screens with advertisements featuring Bollywood actors endorsing crypto exchanges. Crypto ads dominated during the Indian Premier League and ICC T20 World Cup matches.

While CoinDCX roped in Ayushman Khurrana, CoinSwitch Kuber got Ranveer Singh. Bitbns ran a campaign with scriptwriter Biswapati Sarkar interviewing celebrities. The exchanges were quick to draw flak for luring gullible investors into an unregulated market.

“They don’t have a clue about what they are getting into and what happens to the money,” says Sharat Chandra, a blockchain and emerging tech evangelist. Chandra says there was an explosion of users from Tier 2 tier and Tier 3 cities soon after the crypto ads aired during the cricket matches. “The advertisement narrative is about how much money you can make quickly. No one talks about how much you can lose,” he says. The exchanges pulled the promotions after the backlash.

Investors can complain to the Advertising Standards Council of India, the self-regulatory body of advertisers. However, the agency does not have any guidelines specific to crypto advertisements.

Regulation

Some exploits show that cryptocurrencies cannot be regulated in isolation as there is an entire gamut of issues, including jurisdictional, that they churn up. In July this year, the Tata brand name was used by a UK-based entity, Hakuna Matata, that launched a crypto coin, $TATA. Tata Sons failed to get the Delhi High Court to issue an injunction restraining the use of its trademark for the coin as the crypto firm was based outside India. TATA coin has since then gone defunct with zero market cap.

The incident shows crypto regulation has to consider multiple aspects. The government is viewing legislation from a point of view of preventing money laundering and the use of crypto in the drug trade. Speaking at the Australian Strategic Policy Institute on November 18, Indian Prime Minister Narendra Modi said cryptocurrencies pose a risk to younger generations. Modi urged all democratic nations to work together and ensure that the sector does not end up in the wrong hands.

Five days before the speech, he had chaired a meeting on the way forward for cryptocurrency. It was felt at the meeting that crypto advertisements were misleading the youth by being non-transparent and over-promising returns. But the government does not want to miss a revenue-generating opportunity and may favour currency tokens to be seen as assets similar to shares, gold, or bonds. The RBI is dead against allowing cryptocurrencies as it fears they could destabilize the monetary system.

To protect investors from falling for crypto scams and Ponzi schemes, the government will also have to look at social media and advertisement laws.

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