Home Business Crypto Seduces Indians With 3,100% Returns, They Are Neglecting The Risks

Crypto Seduces Indians With 3,100% Returns, They Are Neglecting The Risks

The multilevel marketing model based on referral fees is highly risky.

Sanjay Kamble hit the jackpot when an obscure token he invested in rose nearly 3,100% in eight months. He quit his dead-end marketing business this year and became a full-time crypto evangelist.

These days, the 51-year-old drives around in his new Toyota sedan – which he couldn’t afford a year ago – on the dusty streets of his hometown in rural India, showing off his success from investing in the BlockAura token. He calls on farmers, teachers, housewives, friends, relatives and neighbors to join him, promising that their investment will triple in 300 days.

“I don’t need a day job,” Kamble said by phone from Sangli, about 230 miles southeast of Mumbai. “BlockAura is the next bitcoin.”

Kamble is among thousands of investors in India who, betting crypto is the fastest way to get rich, have been lured by a bunch of startups that are vying for so-called staking rewards per share with lax regulations in the market. The month promises yields of up to 25%. These are usually payoffs for investing in illiquid tokens and referral bonuses on a large scale to add more people to a multilevel marketing network. The mouth-watering returns are too good to ignore in a country where annual per capita income is among the lowest in the world. Critics such as Pranjal Daniels at Strategy India warn that some of these networks often become pyramid schemes.

Reflecting a broader downturn in the crypto universe this year, the digital asset bubble is already showing signs of trouble. The recent collapse of Sam Bankman-Fried’s vast FTX empire and the resulting turmoil is spreading to other companies as well. Crypto lender BlockFi Inc filed for bankruptcy this week, while brokerage Genesis is seeking to avoid a similar fate. But industry defenders like Changpeng “CZ” Zhao, founder of the world’s largest crypto exchange Binance Holdings Ltd., have said this is not the end.

According to CoinGecko, an aggregator of token prices, Block Aura’s native token, called TBAC, has fallen 90% from its all-time high of $32.30 in July to $3.03. On PancakeSwap, it is trading at just $3 per share with a seven-day volume of $20,000, while on UniSwap, it can be exchanged with other tokens for around $19 per piece, although there is not much trading there. .

Following the plunge, BlockAura limited daily withdrawals to the equivalent of $250 to prevent panic selling. It has imposed such onerous conditions that many investors cannot even recoup their losses and exit completely. This means that Kamble’s claimed daily income of $2,000 – through tokens earned from staking, referrals and reinvestment – ​​is now much lower, at least on paper.

Kamble is adamant and is betting that TBAC will rise to $10,000 in two to three years.

The rush for a quick buck is blinding many investors to warnings of huge risks from some of the biggest names in finance: Jamie Dimon, chief executive officer of JPMorgan Chase & Co., described cryptocurrencies as “decentralized Ponzi schemes” in September while the Monetary Authority of Singapore called such investments “highly dangerous” in August. India began taxing crypto transactions this year in a bid to track deals and discourage trading broadly. Finance Minister Nirmala Sitharaman has said that the biggest risk to countries is the potential misuse of cryptocurrencies for money laundering and terror financing.

Multi-level marketing models based on referral fees – where tokens are staked primarily within those networks – are highly risky. Investors earn in less liquid, native tokens that are more susceptible to price fluctuations at the time of withdrawal. BlockAura Foundation founder Firoz Multani said his platform adopts a network-marketing, but not pyramid, model, and incentives for referrals are mainly used to expand the user base, he said. He added that profits can fluctuate depending on the price of the token, but there is no risk of losing capital, as returns distributed within the community help to recover the principal amount within five months.

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Apart from BlockAura, SBG Global and ApeJet are among the other Indian startups that have emerged in the last one year.

Launched in 2021, BlockAura now has 60,000 investors, according to Multani, an Indian living in Dubai. SBG Global, founded by real estate developer Anil Yadav, offers triple returns in 20 months and boasts of over 100,000 users. ApeJet, a relatively new entrant, offers $605,000 worth of free gifts ranging from iPhones to villas in Dubai as an attraction.

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None of these startups have been accused of any wrongdoing, but experts including Ari Radbord, head of legal and government affairs at TRM Labs, a San Francisco-based blockchain intelligence firm, warn that such get-rich-quick Chains only increase the risk of fraud.

“There is arguably an unnatural excitement in space and many people are overtaken by the fear of missing out,” Radbord said. “It’s a recipe for scams and fraud” broadly in this space, he said.

About 60% of SBG Global’s users are part of its multilevel marketing model, and the platform has plans to address potential risks by offering diversified products, said Praveen Rai, its head of international marketing. Appjet founder Mayank Dudeja did not respond to messages and phone calls seeking comment.

India has seen its share of crypto frauds in recent years. In 2018, a police investigation found that more than 25,000 investors were duped, while the country’s top court is hearing a case of alleged fraud worth around $1.6 billion at current prices. Bitconnect, a global scam worth around $2.4 billion, had its roots in India.

no geography

“The amazing thing is that these companies have been able to operate without regulation,” said Mark Mobius, co-founder of Mobius Capital Partners. “Regulators have a big problem,” he said, adding crypto has no geography, “you can’t get your hands on it, it’s in the atmosphere.”

According to Deputy Governor T. Rabi Shankar, the Reserve Bank of India does not see any crisis right now. Although researcher Chainalysis ranks India at No. 4 in the world in crypto adoption, Shankar said that a very large portion of investors have small holdings. Still, it regularly cautions the public about the risks.

Shankar echoed the Indian government’s stand in an interview in Singapore, saying, “We need a globally coordinated approach.” “Nobody wants a situation where people lose their savings.”

Given the nature of multilevel marketing networks, the risks are even more pronounced, said Daniel, chief strategist at Strategy India, a Mumbai-based consultancy that studies fraud schemes.

“What is different about MLMs and other Ponzi schemes in crypto is the tokenization process, and the ability to whip up new coins, market them as revolutionary, drive up prices, and then abscond with the proceeds, said Eric Jardine, Cybercrime Research Lead at Chainalysis.

In addition to the daily limits, BlockAura has told its investors that it operates on a price basis of $61 per token – much higher than the prevailing market price – which means users will have less cash when they redeem their rewards. . TBAC is currently in test mode. It was supposed to go live last month, but has been postponed. BlockAura has also launched multiple versions of the token at higher prices.

speaking out

Some disgruntled users are speaking out. Akhilesh Agarwal, 52, invested $10,000 in BlockAura tokens in May and collected $25,000 in rewards over the next four months. The sanctions mean his entire principal has been wiped out, he said, adding that he quit in November.

“I have been duped, I don’t want to dupe more users,” he said from New Delhi. “Initially only a few people made money when the token price was rising. Now we can’t withdraw and everyone’s money is stuck.”

Rejecting such complaints, Multani said that the withdrawal limit is temporary. “Those who believe in BlockAura know that the coin will reach $100 within a year,” he said. “TBAC is a store of value. My goal is that no one should lose money.”

Some users claimed to have thousands of success stories like Kamble’s. “You need the stomach to take risk if you want high returns,” said Sourav Kumar, 33, who put his full faith in SBG Global after losing money in another networking blockchain.

Yashveer Chauhan, 21, a college student and an Appjet investor, won a new Kia Sonet compact SUV as a reward for bringing more investors into the chain, a few months after acquiring the iPhone. “There is no harm in this plan as the community will support the token,” he said.

Three blockchain firms flew hundreds of their high-performing users from India to Dubai in October as part of their awards program, showcasing them at an industry event to woo more overseas. For SBG Global and BlockAura investors, it was their second international trip in nearly three months, following trips to Singapore in June and July, where they filled half a conference room at a high-end hotel and cheered on the founders.

“The rewards are meant to help build the community,” said Yadav, founder of SBG Global, which invests customers’ money in real estate, forex and crypto trading to earn those returns. He will win.”

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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