India has to solve the ‘crypto riddle’ soon

The crypto industry in India has been time and again put under strict regulations given the central bank's vehement opposition to any public blockchain-based use cases for digital assets; one can speculate that India's regulatory framework follows an extremely cautious and conservative approach. 

Will it further become stricter, or will it allow the crypto segment to work through under further strict guidelines and measures? 

However, it is important to note that the frameworks being developed across the world are also strict.

There are few regulators across the world who ensure that crypto is kept well under control. MAS (Monetary Authority of Singapore) in Singapore runs an extremely tight ship. 

MiCA (Markets in Crypto-Assets Regulation) in the EU region is also a tough regulatory framework. 

“What they are not, is disproportionately unfair to the industry and the business participants. They remain strict, yet are able to ensure that local businesses and business models can sustain alongside strict regulations. India already has the harshest taxation on VDAs (Virtual Digital Assets)—strict regulations should be fine; however, the hope is that business feasibility will continue to be considered as an important aspect of the framework, as is done across global regulatory frameworks,” pointed out Manhar Garegrat, India Head, Liminal Custody.

Experts point out that while the steps taken by the government are understandable and important from the standpoint of investor protection, taxation, financial stability and preventing the misuse of digital assets, the next phase should focus on providing greater regulatory clarity to the ecosystem.

“India has already taken meaningful steps by bringing virtual digital assets within the tax framework, strengthening KYC requirements and increasing oversight of intermediaries. These measures signal that the government recognises both the growing relevance of the sector and the risks that need to be addressed. At the same time, regulation should continue evolving alongside the technology. A dedicated and technology-aware framework could clearly define permitted use cases, the treatment of stablecoins, cross-border transactions, reporting obligations and the responsibilities of exchanges, issuers and other intermediaries,” said Nishant Das, founder and CEO of Cheerio AI.

This expert feels that greater clarity would not only strengthen enforcement and consumer protection, but also help responsible businesses distinguish themselves from speculative or non-compliant actors. 

“The objective should be to create a framework where innovation can take place within clearly defined boundaries, while the government retains the visibility and safeguards required to protect the broader financial system,” added Das.

Market analysts point out that any further move towards firmer crypto regulation in India will be read by the crypto industry as progress, as there is a need for a nuanced crypto policy framework that draws a distinction between speculative, privately issued crypto assets and blockchain-based infrastructure, including tokenisation of real-world assets, that can strengthen regulated finance, so innovation doesn't need to be sacrificed for prudence.

“For investors, regulatory clarity, even if stricter, reduces the uncertainty that currently pushes capital towards offshore, unregulated platforms. For the ecosystem, guardrails around custody, licensing and market conduct build the institutional trust needed for long-term participation.

Globally, we are seeing that clarity and caution aren't mutually exclusive. Japan's move to reclassify crypto as a financial asset under its securities law pairs stricter investor safeguards with a more competitive tax framework, to keep activity onshore rather than push it away. India can draw the same lesson,” observed Edul Patel, founder and CEO, Mudrex.

Japan's parliament has passed a landmark amendment recognising cryptocurrencies as financial assets, marking a significant step towards mainstream digital asset adoption and regulatory clarity.

“Japan's decision to classify cryptocurrencies as financial assets is another sign that global markets are moving toward treating crypto as a mainstream investment class rather than a speculative alternative. While this does not directly change India's tax or regulatory framework, it strengthens the global case for clear, balanced regulation. For Indian investors, the immediate impact is likely to be indirect through stronger institutional participation, better market infrastructure, and improved liquidity, all of which support healthier price discovery for crypto assets,” added Patel.

He further adds that this decision highlights the growing policy gap between India and other major economies. 

“Japan has paired stricter oversight with a more competitive tax framework to encourage innovation and capital formation. As more countries adopt similar approaches, India has an opportunity to build on its leadership in crypto adoption by creating a regulatory environment that protects investors while enabling the ecosystem to grow,” remarked Patel.

Though private crypto is legal to hold and trade in India, it is not a legal tender and is taxed punitively. “The policy goals for any crypto regulation in India should be to preserve monetary sovereignty and capital-account controls (FEMA). There should also be attempts to protect retail from misselling crypto. At the same time, the state-backed digital rupee will reduce the state tolerance for private stable tokens,” remarked Sudin Baraokar, AI & Quantum Expert and former Chief Technology Officer of the State Bank of India.