India Halts Crypto Legislation Over Systemic Risk Fears—What It Means For Digital Assets

New Delhi hits pause on crypto regulation—citing financial stability concerns as the driving force.

Behind The Decision

Government insiders point to potential contagion risks—fearing unchecked crypto growth could destabilize traditional banking systems. No timeline for future legislation—leaving investors and exchanges in regulatory limbo.

Market Reaction

Trading volumes dip momentarily—then bounce back as seasoned crypto players shrug off the news. “Markets hate uncertainty, but they hate overregulation more,” quips one Mumbai-based trader.

Global Context

India joins a growing list of nations wrestling with crypto oversight—balancing innovation against financial safeguards. Meanwhile, decentralized networks keep humming—oblivious to political deliberations.

Long-term Outlook

Regulatory delays might actually fuel innovation—pushing development toward more resilient, decentralized protocols. Because nothing says progress like bureaucrats moving slowly while tech moves at light speed.

Government delays policy decisions while banks freeze access

India already tried to go after crypto once. Back in 2021, the government put together a bill to ban private coins, but it never moved forward. During the country’s G20 presidency in 2023, officials pushed for a global framework.

Then in 2024, they promised a public paper to explain India’s position on the matter, but later delayed it. The new plan? Wait and see what the U.S. does with crypto first.

Meanwhile, foreign crypto exchanges are still allowed to operate in India. They just need to register locally and go through due diligence checks to make sure money laundering laws are followed.

But taxes are brutal. The government imposes high penalties on any profits from crypto. Those tax policies, plus the lack of legal clarity, have nearly shut down trading between traditional banks and crypto companies.

The Reserve Bank keeps warning the public about the dangers. That’s led to a near-total freeze on any kind of formal financial LINK between the crypto industry and the regular banking system. Still, Indians have poured over $4.5 billion into crypto holdings.

But for now, officials don’t think that kind of exposure is big enough to shake up the economy.

Stablecoins raise new concerns as U.S. sets rules

The document reportedly says current tax rules and limited legal clarity are actually helping. They make speculative trading less attractive and help prevent fraud. It also adds that with different countries doing different things, coming up with one clear policy isn’t going to be easy.

U.S. President Donald TRUMP signed the GENIUS Act into law on July 18. That law allows stablecoins to be used more widely. India’s government says this shift could affect both advanced and developing countries.

Most stablecoins are pegged to the dollar. The paper warns that this could disrupt other countries’ payment systems. It also points out that even so-called “stable” coins can swing in value when markets are hit with liquidity shocks.

Indian officials are worried that the spread of stablecoins might mess with national systems like UPI, which handles instant digital payments between Indian banks. “Widespread use of stablecoins could fragment national payment systems,” the document said.

Sign up to Bybit and start trading with $30,050 in welcome gifts