A crypto party in India is showing signs of trouble amid the broader market landscape. Loose regulations increase risk, experts say.
Sanjay Kamble hit the jackpot when a little-known token he invested in grew about 3,100% in eight months. He quit his deadlocked marketing job this year and became a full-time crypto evangelist.
These days, the 51-year-old man drives around in his new car Toyota a sedan – a car he couldn’t afford a year ago – on the dusty roads of his hometown in rural India, demonstrating his success from investing in tokens BlockAura newspaper. He encouraged farmers, teachers, housewives, friends, relatives and neighbors to join him, promising that their investment would triple in 300 days.
Kamble is one of thousands of investors in India betting cryptocurrencies as the fastest way to get rich, attracted by a range of starting a business promises returns as high as 25% a month in so-called staking rewards in a market with lax regulations. These are paybacks for investing in largely illiquid tokens and referral bonuses for adding more people to typical multi-level marketing networks. Attractive returns are too good to ignore in a country with one of the lowest annual per capita incomes in the world. Critics like Pranjal Daniel at Strategy India warn some of these networks often turn out to be pyramid schemes.
“I don’t need a day job,” Kamble said by phone from Sangli, about 230 miles southeast of Mumbai. “BlockAura is the next product Bitcoin. ”
But the digital asset Kamble is touting has shown signs of trouble, reflecting the broader crisis in the crypto world this year. The recent collapse of Sam Bankman-Fried’s vast FTX empire and the turmoil it has caused are spreading to other companies as well. Cryptocurrency lender BlockFi Inc. filed for bankruptcy this week, while brokerage Genesis seeks to avoid a similar fate. But industry defenders like Changpeng “CZ” Zhao, the founder of the world’s largest cryptocurrency exchange Binance Holdings Ltd., have said that this is not the end.
BlockAura’s native token, known as TBAC, fell 90% to $3.03 from an all-time high of $32.30 in July, according to CoinGecko, a token price aggregator. notification. On PancakeSwap it is trading at $3 a piece with a seven-day volume of just $20,000, while on UniSwap it can be redeemed for another token for around $19 a piece , although there aren’t many transactions there.
After the plunge, BlockAura capped daily withdrawals to the equivalent of $250 to prevent panic selling. It has imposed such heavy conditions that many investors are not even able to cut their losses and get out completely. That means that Kamble’s daily earnings of $2,000 – through staking, referrals and tokens earned on reinvestment – are now worth much less, at least on paper. .
Undaunted by the drop in value, Kamble is confident TBAC will grow to $10,000 in two to three years.
The quick money craze is blinding many investors to increased risk warnings from some of the biggest names in finance: the CEO of JPMorgan Chase & Co. Jamie Dimon in September described the cryptocurrency as a “decentralized ponzi scheme”, while the Monetary Authority of Singapore in August called such investments “very dangerous”. India started taxing cryptocurrency transactions this year in order to track transactions and generally to discourage trading. finance minister Nirmala Sitharaman stated that the biggest risk to countries is the potential for the misuse of cryptocurrencies to launder money and finance terrorism.
The referral fee-based multi-level marketing model – where the tokens are placed mainly in those networks – is very risky. Investors make money with native tokens, which are less liquid, susceptible to price fluctuations at the time of withdrawal. BlockAura Foundation founder Firoz Multani said his platform adopts network marketing, but not pyramids, the model and referral incentives are mainly used to expand the user base, he said. Profits can fluctuate depending on the price of the token, but there is no risk of capital loss, as staking returns are distributed in the community which helps to earn back the principal within five months, he said.
Besides BlockAura, SBG Global and ApeJet are among the other Indian startups that have emerged over the past year or so.
Starting in 2021, BlockAura now has 60,000 investors, according to Multani, an Indian man living in Dubai. SBG Global, founded by real estate developer Anil Yadav, tripled profits in 20 months and has over 100,000 users. ApeJet, a relatively new competitor, dangles free gifts from iPhones to a $605,000 mansion in Dubai as an enticement.
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None of these startups have been accused of any wrongdoing, but experts include Ari Redbord, head of legal and government affairs in San Francisco. blockchain intelligence firm TRM Labs, warns that such get-rich-quick chains only increase the risk of deception.
“Arguably the overwhelming space is unnatural and a lot of people have succumbed to the fear of missing out,” says Redbord. “It’s a recipe for scams and frauds” that are widespread in this space, he said.
About 60% of SBG Global’s users are part of a multi-level marketing model, and the platform plans to address potential risks by offering diversified products, international marketing director Praveen Rai said. ApeJet founder Mayank Dudeja did not respond to texts and phone calls requesting comment.
India has seen a high rate of crypto fraud in recent years. In 2018, a police investigation found that more than 25,000 investors had been duped, while the nation’s top court was hearing the case of an alleged scam worth around 25,000 USD. $1.6 billion at current prices. BitConnect, an approximately $2.4 billion global scam, originated in India.
The Reserve Bank of India According to Deputy Governor T. Rabi Sankar, there is no crisis yet. Although researcher Chainalysis ranks India 4th in the world in terms of crypto adoption, Sankar says a very large percentage of investors have a small stake. However, it regularly warns the public about the risks.
“What we need is a globally coordinated approach,” Sankar said in an interview in Singapore, echoing the stance of the Indian government. “No one wants a situation where people lose their savings.”
Daniel, chief strategist at Strategy India, a consulting firm specializing in researching scam schemes based in Mumbai, says the risk is even more apparent due to the nature of multi-level marketing networks. .
“What is different about MLM and other ponzi schemes in crypto is the tokenization process and the ability to create new coins at will, market these coins as a revolution, push the price up and then absconded with the proceeds,” said Eric Jardine, Cybercriminal Lead Researcher at Chainalysis.
In addition to the daily limits, BlockAura has told its investors that it operates on a $61 value per token basis — much higher than the prevailing market price — meaning users will pocket less money when they redeem rewards. TBAC is currently in beta mode. It was scheduled for release last month, but that was postponed. BlockAura has also launched multiple versions of the token with higher prices.
Some disgruntled users are speaking out. Akhilesh Agarwal, 52, invested $10,000 in BlockAura tokens in May and accumulated $25,000 in bonuses over the next four months. He said the curbs meant his entire principal was wiped out, adding that he quit in November.
“I’ve been scammed, I don’t want to trick more users,” he said from New Delhi. “Only a few people make money at the beginning when the price of the token goes up. Now we can’t withdraw money and everyone’s money is stuck.”
Multani denied such complaints, adding that the withdrawal limit was only temporary. “Those other things Who believes in BlockAura and knows the coin will hit $100 within a year will stay,” he said. “TBAC is a store of value. My goal is that no one loses money.”
Several users have shared what they claim are thousands of success stories similar to Kamble’s. Saurav Kumar, 33, who has put his full trust in SBG Global, said: “You need to take risks if you want high returns. money in another network blockchain.
Yashveer Chauhan, 21, a college student and ApeJet investor, won a new Kia Sonet compact SUV as a reward for attracting more investors to the chain, months after acquiring it. an iPhone. “There is no loss in this plan as the community will support the token,” he said.
Three blockchain companies brought hundreds of their high-performing users from India to Dubai in October as part of their rewards program, presenting them at an industry event aimed at attracting more foreigners. more outside. For SBG Global and BlockAura investors, this is their second international trip in about three months following a visit to Singapore in June and July, where they filled half of the conference room at a hotel. senior and cheer the founders.
“The rewards are for helping build the community,” said Yadav, founder of SBG Global, who invests client funds in real estate, forex and crypto trading to earn those returns. “Whoever has community wins.”