Indian Government to Focus on the Regulation of Newer Forms of Investing at the Earliest

In response to a recent Rajya Sabha inquiry, the Indian government stated that it has no clue about "the number of cryptocurrency exchanges active in the nation and the number of investors related to the same" since it does not collect this data. According to industry estimates, there are around 15 million crypto investors.

In comparison, the total number of Demat accounts for share trading in India was close to 60 million as of May. Demat accounts have been around for over a quarter-century. The number of crypto investors in India has increased by leaps and bounds.

This is aided by the fact that crypto exchanges are heavily funded by venture capital, allowing them to heavily publicize the simplicity with which such investment may be carried out digitally. There have been several similar commercials throughout the broadcast of the Tokyo Olympics, the World Test Cricket Championship, and the current India-England Test Series.

While virtually all of these commercials emphasize the convenience of investment and the fact that money can be produced while sitting at home, none of them go far enough to highlight the financial risk involved. Their disclaimers, if any, are either in extremely small characters hardly visible to the human eye or barely heard in a two-second sound bite at the end of their ads.

Cryptocurrency values fluctuate fast, making them a high-risk investment option. When an investor gets money, it may appear to be quite simple, but that money may be gone just as fast as it was gained. Cryptocurrency advertisements don't do anything to communicate this risk.

The rise of the digital medium has thrown up all kinds of other investment opportunities

Not just cryptocurrencies, but the advent of digital media has created a plethora of additional investment options. Retail investors may now trade foreign currencies from the comfort of their own homes. Those who understand foreign exchange realize that the value of a currency fluctuates relatively little versus the value of other currencies on any given day. The only option for an investor to increase returns is to leverage the investment. While leverage increases returns, it also increases losses if the deal goes against the investor. Such complexities are unfamiliar to ordinary investors who are making their maiden forays into such new instruments.

Furthermore, money may be gained online by playing card games such as rummy. In reality, many of these online card games are promoted by unemployed film and television celebrities. Then numerous websites function on the verge of being a skill or luck game (and thus gambling platforms). Many cricketers promote such competitions.

In addition, there are stock market influencers that suggest certain stocks and initial public offerings (IPOs) on their YouTube channels. They have agreements with stock brokerages, and in some cases with brokerages that profess not to promote, and it is not always obvious whether the power they wield is paid for by advertising. If such influencers disclosed upfront that they are being compensated to make a certain suggestion; their business model would most likely crumble.

The point to be noted

The issue here is that the development of inexpensive smartphone-enabled internet access, combined with the work-from-home dynamics of the covid epidemic, has resulted in a tremendous surge in what could be classified as new kinds of investment, particularly at the retail level. It has also increased the financial risk that these investors are willing to take. This would not have been an issue if investors understood what they were putting themselves into, but most do not.

Typically, one would expect them to self-regulate and provide necessary disclaimers when promoting, therefore properly disseminating messages. However, as numerous financial crises have demonstrated, self-regulation and the financial services industry seldom go hand in hand. This is why financial services continue to be highly regulated.

Indian regulators, such as the Reserve Bank of India and the Securities and Exchange Board of India, have certainly been caught off guard when it comes to these emerging kinds of investment. One reason for this is because these newer forms are largely in the digital sphere, which runs 24 hours a day, seven days a week, making enforcement difficult.

Given that the first generation of youngsters who have been using smartphones for at least a decade are now becoming adults, and understanding their technological prowess, they will be more likely to invest in these newer choices rather than follow the traditional route. As a result, Indian authorities must begin enforcing laws, beginning with a requirement for proper risk disclosure when such businesses advertise.

At the very least, the cryptocurrency bill is said to be ready and awaiting approval from the Union cabinet.

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