India’s Crypto Paradox: No.1 in Adoption, Still No Clear Regulation

India’s Crypto Crossroads: Why Policymakers Hesitate Despite World-Leading Adoption

India has emerged as the world’s largest hub for cryptocurrency adoption, ranking number one on the 2025 Chainalysis Global Crypto Adoption Index. Millions of Indians are actively using digital assets across centralized exchanges and decentralized platforms, from trading Bitcoin and Ethereum to experimenting with decentralized finance (DeFi) and NFTs. Yet, despite this rapid rise in usage, the government has refrained from introducing a clear regulatory framework.

The question many investors, entrepreneurs, and analysts are asking is: why does India hesitate to regulate crypto despite leading global adoption?

A Reluctant Giant in the Digital Asset Economy

According to industry observers, the hesitation stems from fears of legitimizing a sector that authorities still consider speculative and unstable. The Reserve Bank of India (RBI) has long maintained that cryptocurrencies pose systemic risks to the country’s financial system. Officials argue that even if India were to regulate crypto formally, it would be nearly impossible to monitor peer-to-peer transactions or decentralized protocols that operate beyond national borders.

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Instead, the government has adopted what many describe as a “middle path”—a combination of limited taxation, partial oversight, and strict restrictions without providing crypto legal status. This approach, critics say, has created a climate of uncertainty for businesses and consumers alike.

The Fear of Legitimacy and Old Wounds

For policymakers, acknowledging crypto through regulation could accelerate mainstream adoption, potentially destabilizing traditional banking and payments systems. The caution is not without precedent. India’s draft Cryptocurrency and Regulation of Official Digital Currency Bill was shelved in 2021, and a long-awaited consultation paper in 2024 never materialized.

At the heart of this hesitation are deep scars from past incidents. High-profile security breaches, including the WazirX hack in 2022, which saw losses of approximately $230 million, and the CoinDCX breach in 2024, which drained about $44 million, have underscored vulnerabilities in the industry. These crypto hacks rattled both regulators and the public, reinforcing fears that premature legalization could expose millions of Indians to financial losses.

A former finance ministry official told ABC News on condition of anonymity: “Every hack makes policymakers more cautious. They fear being blamed for legitimizing an industry that is still struggling with security and transparency.”

Growing Calls for Stablecoin Regulation

Despite official hesitation, momentum is building for at least partial regulation—particularly in the area of stablecoins. Stablecoins are digital assets pegged to fiat currencies such as the US dollar, euro, or potentially the Indian rupee. Advocates argue they could serve as a bridge between traditional finance and the digital economy.

Former RBI Executive Director G. Padmanabhan has been vocal in urging the government to move forward with a clear stablecoin framework, warning against repeating the “lost years” of indecision seen with crypto more broadly.

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The political establishment is also beginning to shift. Union Minister Jayant Chaudhary and his spouse recently disclosed holdings worth ₹43 lakh ($51,000) in digital assets, signaling growing acceptance within India’s corridors of power.

Meanwhile, CoinDCX CEO Sumit Gupta has publicly championed the introduction of a rupee-backed stablecoin. According to Gupta, such a digital currency could reduce remittance costs, enhance India’s export competitiveness, and support the country’s ambition to become a $10 trillion economy by 2035.

Globally, the stablecoin market has surpassed $150 billion, with USD Coin (USDC) and Tether (USDT) dominating flows. Yet India has no official rupee-backed counterpart. Analysts believe that introducing a regulated INR stablecoin could cut India’s $125 billion annual remittance costs by up to 90% and improve financial inclusion for millions.

Risks That Keep Regulators Up at Night

Still, the potential benefits are counterbalanced by significant risks. Weakly designed stablecoin regulations could lead to unintended consequences for India’s financial system.

Economists warn that if stablecoin issuers hold large amounts of short-term government securities, sudden redemption requests could destabilize bond markets—a scenario reminiscent of the Silicon Valley Bank collapse in 2023. Moreover, widespread adoption of private stablecoins could drain liquidity from traditional banks, weakening their ability to issue credit.

Cross-border flows also present challenges. Without strict monitoring, stablecoins could be used for capital flight, tax evasion, or money laundering—issues Indian regulators are keenly aware of.

An RBI report from July 2025 cautioned: “Stablecoins, if introduced without robust guardrails, could amplify financial instability rather than mitigate it. The key is to balance innovation with systemic safeguards.”

The Global Context: Lessons from Other Nations

India’s hesitation also reflects a “wait-and-watch” strategy toward international regulatory developments. Countries like Singapore, Japan, and the European Union have already enacted stablecoin and crypto frameworks, while the United States continues to debate federal legislation.

For India, moving too quickly could expose it to risks, but moving too slowly could mean missing out on innovation and capital inflows. Experts argue that as the world’s largest crypto adoption market, India cannot indefinitely remain on the sidelines.

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International Monetary Fund (IMF) analysts recently noted that India’s cautious stance mirrors that of other emerging markets worried about volatility and capital outflows. However, the IMF also emphasized that “clarity, not delay, is the best defense against financial instability.”

What Happens Next?

For now, India appears committed to keeping crypto on the fringes of the economy. Tax policies remain punitive, with a 30% tax on gains and 1% TDS (tax deducted at source) on transactions—measures that have already pushed many traders to offshore platforms.

But pressure is mounting. Entrepreneurs warn that prolonged uncertainty could drive innovation out of India, depriving the country of a chance to lead in blockchain and Web3 development. Investors, meanwhile, are lobbying for at least incremental progress, such as a pilot program for a rupee-backed stablecoin under strict oversight.

Ultimately, the decision will rest on whether policymakers believe they can manage the risks without sacrificing the benefits of innovation.

Conclusion

India stands at a pivotal moment in its digital finance journey. On one hand, it leads the world in crypto adoption, with millions of citizens actively using digital assets. On the other, its regulators remain cautious, fearful that legitimizing crypto could destabilize the financial system.

Stablecoins may offer a middle ground—a regulated, transparent, and rupee-backed digital currency that boosts efficiency while maintaining safeguards. But hesitation continues to define India’s approach, even as global markets accelerate.

The longer India delays, the greater the risk that innovation, capital, and talent will flow elsewhere. For now, the government seems determined to hold the line, preferring to watch and learn from others before committing. But eventually, clarity will be unavoidable.

Writer @Erlin

Erlin is an experienced crypto writer who loves to explore the intersection of blockchain technology and financial markets. She regularly provides insights into the latest trends and innovations in the digital currency space.

 

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