India is charting a deliberate course in its approach to cryptocurrency regulation, eschewing immediate legislative action in favor of a cautious, observational strategy. This measured stance stems from a profound concern that formal endorsement could inadvertently legitimize a nascent sector, potentially elevating it into a systemic risk for the nation’s financial infrastructure, while also acknowledging the inherent difficulties in fully controlling decentralized digital assets.
A recent government assessment, as reported by Reuters, underscores this apprehension, highlighting officials’ fears that regulatory frameworks might inadvertently integrate crypto into the mainstream financial system. The Reserve Bank of India (RBI), under Governor Shaktikanta Das, has articulated the view that attempting to control cryptocurrencies through traditional rules would be both challenging and precarious. The underlying concern is that formal recognition could enable rapid, unchecked growth, pushing the sector towards a systemic scale. However, policymakers also recognize that a complete prohibition would be impractical, as it would not deter peer-to-peer transfers or trading on decentralized platforms. Consequently, a “wait and watch” approach has been adopted for the foreseeable future.
This current policy reflects a pivot from previous efforts. In 2021, India drafted legislation aimed at banning private cryptocurrencies, which ultimately did not progress. During its G20 presidency in 2023, the nation advocated for a global regulatory framework. Subsequently, a promised public paper detailing India’s official stance was delayed, with the government now indicating a preference to observe and react to policy developments, particularly those emerging from the United States. While foreign crypto exchanges are permitted to operate within India, they are subject to local registration and stringent due diligence checks to ensure compliance with anti-money laundering regulations.
Despite allowing foreign exchanges, the operational landscape for crypto in India remains challenging due to formidable tax policies. High penalties on crypto profits, coupled with persistent regulatory ambiguity, have severely restricted formal financial interactions between traditional banks and crypto entities. The RBI has consistently issued public warnings regarding the risks associated with digital assets, contributing to a near-total freeze on formal banking access for the crypto industry. Notwithstanding these deterrents, Indian citizens have invested over $4.5 billion into cryptocurrency holdings. Yet, officials currently assess this exposure as insufficient to pose a significant threat to the broader economy, viewing the existing tax and clarity gaps as somewhat beneficial in curbing speculative trading and potential fraud.
Adding to India’s regulatory considerations is the evolving global landscape of stablecoins. The recent signing of the GENIUS Act by U.S. President Donald Trump, which facilitates wider stablecoin utilization, is seen by Indian officials as a development with potential implications for both advanced and developing economies. The primary concern centers on the dominance of U.S. dollar-pegged stablecoins and their capacity to disrupt national payment systems, such as India’s Unified Payments Interface (UPI). The government document reportedly warns that widespread stablecoin adoption could lead to the fragmentation of national payment systems. Furthermore, it highlights that even assets dubbed “stable” are susceptible to significant value fluctuations during market-wide liquidity shocks, posing further risks to financial stability.
Michael combines data-driven research with real-time market insights to deliver concise crypto and bitcoin analysis. He’s passionate about uncovering on-chain trends and helping readers make informed decisions.