India has a habit of arriving early in the future but late in completing paperwork. Cryptocurrency is a great example. Across cities, small towns, and trading communities, Indians are embracing digital assets at such a speed that policymakers can no longer dismiss them as the enthusiasm of a few.
Chainalysis has ranked India first in its 2025 Global Cryptocurrency Adoption Index. This highlights the breadth of activity across retail and institutional channels. However, the legal framework surrounding this area remains incomplete. Cryptocurrencies are taxed, monitored, and partially supervised. However, it is still not governed by a clear and comprehensive framework.
indian paradox
This is the paradox of Indian cryptocurrencies. The market clearly exists. States have found it sufficient to impose a 30 percent tax on profits from virtual digital assets and a 1 percent tax as withholding on transfers. We recognize that this is sufficient to bring virtual digital asset service providers within the scope of anti-money laundering reporting obligations.
We recognize that it is sufficient to closely monitor trading patterns for tax compliance. However, awareness stops short of establishing rules. India created a surveillance regime before establishing either classification, consumer protection, or market design.
It’s not a niche hobby
This middle ground was probably defensible when cryptocurrencies were still treated as a speculative sideshow. Now it has less defense. India is not dealing with a niche hobby for engineers. The company is addressing a large, persistent and increasingly sophisticated market. Its users range from spot traders, long-term holders, developers, large institutions, and cross-border participants.
Therefore, the question is no longer whether we should want cryptocurrencies to disappear. The key question is whether India can afford to continue operating its key financial technology sector indefinitely in the policy twilight.
legitimate concerns
To be fair, there is logic to this warning. The Reserve Bank of India has long been concerned about financial stability, capital controls, monetary sovereignty and the risk that speculative mania could negatively impact household finances. These concerns should not be caricatured.
Anyone who has lived through the boom and bust cycles of digital assets knows that unguarded enthusiasm is no substitute for regulation. Fraud, market abuse, reckless leverage and offshore opacity are real risks. A full-fledged framework must start with the fundamental recognition that not all tokens deserve legitimacy, and not all business models deserve impunity.
However, the lack of a perfect framework does not eliminate these risks. It may get worse. Frictional ambiguity tends to lead users to less obvious places. In such locations, there is less oversight by Indian authorities and less recourse for consumers.
Reuters reported that after the 1% transaction tax went into effect in 2022, the volume of domestic transactions decreased significantly. Therefore, when policy-compliant participation becomes more expensive, market participants tend to migrate to more favorable jurisdictions.
In fact, India is moving towards formal surveillance. From 2023, crypto intermediaries will be required to register with the Financial Intelligence Unit (FIU) as reporting entities under anti-money laundering (AML) regulations.
The FIU has continued to strengthen compliance expectations through revised registration circulars and enforcement actions against offshore operators. This is an important change. This shows that India does not consider this sector to be completely beyond governance. However, AML registration is not the same as a market framework.
One deals with illicit financial risks. The other must address asset classification, disclosure, custody, segregation of customer funds, and standards of conduct.
balanced framework
What does a balanced framework look like? First, India should separate the categories currently under discussion as if they were one. Bitcoin is different from algorithmic tokens that are issued on a whim. Stablecoins backed by fiat currencies are not the same as meme assets. And a compliant exchange is not the same as an anonymous offshore exchange.
Regulation becomes more intelligent by differentiating risks, rather than treating the entire ecosystem as a single moral hazard. Second, India needs a licensing and disclosure architecture for intermediaries. There needs to be clear rules around custody, reserves, governance, dispute management and customer disclosure. Third, tax systems should support the formalization of participation, rather than simply punishing it.
India need not believe this. Mature policy does not ask whether virtual currencies are good or bad in the abstract. It asks which activities deserve permission, which activities require restraint, and which activities must be prohibited. In this way, critical jurisdictions govern complex technologies.
The advantage for India is that, despite being in one of the world’s deepest retail markets, there is still time to develop these rules. The danger is that delay can be confused with prudence. As in finance, ambiguity is rarely neutral in cryptocurrencies. After all, someone is paying for it. And the least protected participants usually pay first.
The author is the CEO of Giottus.com, a cryptocurrency exchange registered with the Treasury Department’s Financial Intelligence Service.
The opinions expressed in this article are those of the author and do not necessarily reflect the opinions or views of THE WEEK.
