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The endless crypto hype

Slick and manipulative advertising cannot whitewash the reality of crypto

The endless crypto hypeAnand Kumar

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dhanak हिंदी में भी पढ़ें read-in-hindi

The other day, packaged with a grocery order, I received a sales flyer for some Bitcoin exchange. This is a new one because, as far as I know, Bitcoin advertising has not reached the level of inserting pamphlets into groceries till now. The sales flyer had illustrations (AI-generated, appropriately) of a young man running to catch a bus in 2050 while thinking wistfully, "Kash, papa ne 2024 me Bitcoin liya hota." The reverse side of the pamphlet has a graph of Bitcoin prices along with the message, "Bitcoin prices have surged after every Bitcoin halving." As financial advertising goes, it does not get any simpler than this.

However, as my readers understand, the reality of Bitcoin and other cryptocurrencies is far more complicated and murky than this marketing material suggests. The promised surges in value are enticing, but crypto's volatile nature looms over it. Such pamphlet glosses over the fact that the sector is rife with unpredictable regulatory changes, cybersecurity threats, and market manipulation schemes. On top of that, crypto's lack of intrinsic value and complete dependence on speculative behaviour hardly make it the kind of asset that you can rely upon to ensure that your children do not have to use public transport in 2050.

However, the strangest part of this sales pitch is not what it says but what it does not. Unlike any other financial product, there is no disclaimer on the sales pamphlet. In this country (as in any well-regulated market), no one can advertise or promote any financial product without substantial legal vetting and disclaimers. Take mutual funds, for instance. Whether anyone has ever invested in one or not, they would have heard or read 'Mutual funds are subject to market risks'. And yet, Bitcoin can be advertised without any such warning or disclaimer. This pamphlet said 'Indian govt registered', and that's it.

In the aftermath of the FTX debacle last year, I was actually happy with the absence of official cryptocurrency regulations in India. Till a point, one could say that crypto should remain unregulated, allowing individuals who engage in it to face the consequences of their actions. They should have the autonomy to risk financial ruin on their own terms.

However, contrary to what one might have hoped, the FTX scandal has not proven to be the death knell for crypto. This suggests that the cryptocurrency market may be a permanent fixture in the global financial landscape. The FTX incident has shown that a crypto venture can attract billions from investors worldwide, mismanage it completely, and yet not fundamentally undermine the core principles of cryptocurrency. The potential for profit is simply too significant and easily attainable.

We have reached a stage where everyone thinks that cryptocurrency is a legitimate asset class. While there may be some regulatory obstacles, these will eventually be overcome. As the sales pamphlet claims, another surge in value is inevitable, resulting in a substantial increase in the wealth of those who have crypto.

With each surge, a new wave of unsuspecting savers worldwide will put their financial well-being at risk. In each wave, there will be a new lot of potential victims. Any speculative asset that can randomly double and half is well-equipped to be exploited to lure in newcomers. Quite clearly, this is a role that Bitcoin is now playing. Unfortunately, this could go on for the foreseeable future.

The question that we have to answer, as individual investors, is what are we going to do about this? How are we going to save ourselves from this madness? In the end, the responsibility falls squarely on each individual to navigate this treacherous terrain with caution. The relentless lure of quick money cannot be the principle that guides your financial decisions. There are those who will understand this and those who will not. Which group will you be in?

Also read: The permanent problem of crypto

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