India has a habit of arriving early to the future and late to its paperwork. Crypto is a case in point. Across cities, small towns, and trading communities, Indians have embraced digital assets with a speed that policymakers can no longer dismiss as fringe enthusiasm.
Chainalysis ranked India first in its 2025 Global Crypto Adoption Index. This underscores the breadth of activity across retail and institutional channels. Yet the legal architecture around the sector remains incomplete. Crypto is taxed, monitored, and partially supervised. However, it is still not governed by a clear, comprehensive framework.
India’s paradox
This is India’s crypto paradox. The market exists in plain sight. The state recognises it enough to levy a 30 per cent tax on gains from virtual digital assets and a 1 per cent tax deducted at source on transfers. It recognises it enough to bring virtual digital asset service providers within anti-money-laundering reporting obligations.
It recognises it enough to watch trading patterns closely for tax compliance. But recognition has stopped short of rule-making. India has created a regime of surveillance before establishing one of classification, consumer protection, and market design.
Not a niche hobby
That halfway house was perhaps defensible when crypto could still be treated as a speculative sideshow. It is less defensible now. India is not dealing with a niche hobby of technologists. It is dealing with a large, persistent, and increasingly sophisticated market. Its users span spot traders, long-term holders, developers, huge institutions, and cross-border participants.
The question, therefore, is no longer whether crypto should be wished away. It is whether India can afford to let a major financial technology category operate indefinitely in policy twilight.
A legitimate worry
To be fair, the caution has a logic. The Reserve Bank of India has long worried about financial stability, capital controls, monetary sovereignty, and the risk of speculative manias hurting households. Those concerns should not be caricatured.
Anyone who has seen the boom-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 serious framework must begin with the basic admission that not every token deserves legitimacy and not every business model deserves indulgence.
But the absence of a full framework does not eliminate those risks. It can worsen them. High-friction ambiguity tends to drive users towards less visible venues. In such places, Indian authorities have less oversight, and consumers have less recourse.
Reuters reported in 2022 that the 1 per cent transaction tax sharply reduced domestic trading volumes after it came into effect. So, when policy makes compliant participation expensive, the market participants tend to migrate to more conducive jurisdictions.
India has, in fact, moved towards formal oversight. Since 2023, crypto intermediaries have had to register with the Financial Intelligence Unit (FIU) as reporting entities under anti-money-laundering (AML) rules.
The FIU has continued to tighten compliance expectations through revised registration circulars and enforcement action against offshore operators. This is an important shift. It shows that India does not view the sector as wholly beyond governance. Yet AML registration is not the same as a market framework.
One addresses illicit-finance risk. The other must address asset classification, disclosures, custody, segregation of customer funds, and standards of conduct.
A balanced framework
What would a balanced framework look like? First, India should separate categories that are currently discussed as though they were one. Bitcoin is not the same as an algorithmic token issued on a whim; a fiat-backed stablecoin is not the same as a meme asset; and a compliant exchange is not the same as an anonymous offshore venue.
Regulation becomes more intelligent when it distinguishes among risks instead of treating the entire ecosystem as a single moral hazard. Second, India needs a licensing and disclosure architecture for intermediaries. There should be clear rules on custody, reserves, governance, conflict management, and customer disclosures. Third, taxation should support formalisation rather than merely punish participation.
None of this requires India to become credulous. A mature policy does not ask whether crypto is good or bad in the abstract. It asks which activities deserve permission, which demand restraint, and which must be prohibited. That is how serious jurisdictions govern complicated technologies.
India’s advantage is that it still has time to write those rules while sitting atop one of the world’s deepest retail markets. Its danger is that it may confuse delay for prudence. In crypto, as in finance, ambiguity is rarely neutral. Eventually, somebody pays for it. And usually, the least protected participant pays first.
The author is the CEO of Giottus.com, a cryptocurrency exchange registered with the Financial Intelligence Unit of the Finance Ministry.
The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.
