India Holds Off on Crypto Regulation in 2025, Citing Systemic Risks and Global Uncertainty

Why Is India Avoiding Crypto Regulation?

According to a confidential government document reviewed by Reuters, Indian authorities believe regulating cryptocurrencies would grant them legitimacy, potentially allowing the market to grow "too large, too fast." The Reserve Bank of India (RBI), under Governor Shaktikanta Das, has repeatedly warned that crypto poses systemic risks. "Legalizing crypto could integrate it into India’s mainstream finance, making it a threat during market shocks," the document states. However, an outright ban is also off the table—peer-to-peer trading and decentralized platforms would persist regardless.

From Ban Attempts to a Global Waiting Game

India’s crypto policy has zigzagged for years. In 2021, a draft bill proposed banning private cryptocurrencies, but it never advanced. During its 2023 G20 presidency, India pushed for international coordination. By 2024, officials promised a public stance paper—only to delay it indefinitely. Now, the strategy is clear: monitor the U.S. first. "Why rush when even Washington is still figuring it out?" quipped a Finance Ministry insider.

The Chilling Effect of Taxes and Banking Freezes

While foreign exchanges like BTCC can operate if registered locally, punitive policies have crippled domestic crypto-banking ties. A 30% tax on profits and 1% TDS (Tax Deducted at Source) on transactions, introduced in 2022, drove trading volumes down 90% on Indian platforms, per CoinMarketCap data. The RBI’s warnings have further spooked banks, freezing nearly all formal crypto transactions. Yet, paradoxically, Indians still hold over $4.5 billion in crypto assets—proof of stubborn demand.

Stablecoins: The New Regulatory Headache

The U.S. GENIUS Act’s July 2024 passage, which greenlit stablecoin usage, has added complexity. Most stablecoins are dollar-pegged, raising fears of "payment system fragmentation" in India. The government document warns that widespread adoption could undermine homegrown systems like UPI (Unified Payments Interface), which processes 14 billion transactions monthly. "Even ‘stable’ coins aren’t immune to liquidity crises," notes a BTCC market analyst, referencing TerraUSD’s 2022 collapse.

Is India’s Caution Justified?

Officials argue current ambiguity acts as a "natural filter," deterring speculation and fraud. But critics call it paralysis. "Without clear rules, India risks missing the Web3 revolution," argues tech entrepreneur Nischal Shetty. Meanwhile, the RBI continues advocating for a digital rupee (CBDC) as a safer alternative. For now, the message is clear: crypto won’t vanish, but don’t expect a warm welcome either.

FAQs: India’s Crypto Standoff

Why won’t India regulate cryptocurrencies?

Authorities fear regulation could legitimize crypto, leading to uncontrolled growth that might destabilize the financial system during market downturns.

Can Indians still trade crypto?

Yes, but with hurdles. Foreign exchanges like BTCC operate under strict compliance, while high taxes and banking restrictions limit local activity.

How do stablecoins affect India?

Dollar-pegged stablecoins could disrupt India’s payment ecosystems (e.g., UPI) and create dependency on foreign currency-backed assets.