Cryptocurrency rules can boost digital finance: Cryptocurrencies have once again moved to the centre of global finance. The United States has allowed Americans to invest their 401(k) retirement savings in digital assets, signalling that crypto is entering the mainstream. This follows the GENIUS Act (2025), which mandates that stablecoins be fully backed by liquid assets such as US dollars or Treasury bills and that issuers publish monthly reserve disclosures. Across major economies, the message is clear — regulation, not prohibition, is the way forward.
Japan has reclassified several tokens as securities under its Financial Instruments and Exchange Act (FIEA), bringing crypto assets under strict disclosure and insider-trading norms. By 2026, it will apply a flat 20 per cent capital-gains tax to crypto earnings, replacing the current punitive slabs. The European Union’s Markets in Crypto-Assets (MiCA) framework took effect in December 2024, creating a single licensing regime for exchanges and wallet providers. The United Kingdom, too, has tabled draft legislation integrating digital assets into mainstream financial law. The world’s largest economies are converging on the same principle: crypto must be regulated like any other financial instrument.
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India’s uneasy balancing act
India’s policy approach remains hesitant and fragmented. The Supreme Court’s 2020 ruling restored citizens’ right to trade in crypto, but the absence of a dedicated law keeps the industry in legal limbo. The Reserve Bank of India (RBI) continues to voice systemic-risk concerns, while SEBI has prohibited mutual funds and Alternative Investment Funds (AIFs) from investing in digital assets. The Cryptocurrency and Regulation of Official Digital Currency Bill (2021) was drafted but never introduced in Parliament.
Instead, the Union Budget 2022 imposed a harsh fiscal regime: a 30 per cent tax on gains from virtual digital assets, 1 per cent TDS on every trade, and no offsetting of losses. This approach has driven retail and institutional investors to offshore exchanges, further eroding India’s regulatory oversight. Despite these constraints, India has one of the world’s largest crypto user bases—an estimated 97.5 million individuals, or roughly 7 per cent of the population—which highlights the urgency for policy clarity.
Connecting crypto with India’s digital finance vision
India’s cautious stance contrasts sharply with its bold experiment in sovereign digital currency. The Digital Rupee (CBDC) pilot launched by the RBI in 2022 demonstrates that the government recognises the inevitability of digital money. Yet, crypto regulation and the CBDC remain siloed policy tracks. A coherent framework must position private digital assets and sovereign digital currency as complementary innovations—one enhancing financial inclusion, the other safeguarding monetary stability.
If designed well, such a framework could integrate blockchain-based payment systems with regulated finance, supporting India’s broader push toward Digital Public Infrastructure (DPI) and cross-border payment efficiency. Linking these parallel initiatives would make India’s digital-finance architecture more holistic and globally competitive.
Building a unified regulatory architecture
India needs institutional coherence to move forward. The current patchwork of oversight—with the Finance Ministry taxing, SEBI warning, and the RBI prohibiting—creates confusion and discourages compliance. A coordinated mechanism under the Financial Stability and Development Council (FSDC) could harmonise these roles, or the government could consider creating a Digital Asset Regulatory Authority to consolidate responsibilities for market supervision, consumer protection, and systemic-risk monitoring.
Such coordination is essential to align crypto policy with India’s international obligations under the Financial Action Task Force (FATF). Implementing FATF’s Travel Rule and strict anti–money-laundering (AML) and counter-terror-financing (CFT) standards would also reassure global partners that India’s markets remain secure and compliant. A structured, multi-agency regulatory framework would ensure clarity and accountability while enabling responsible innovation.
Innovation, investment, and talent flight
India’s digital-asset and Web3 ecosystem already employs over 75,000 professionals across nearly 900 start-ups. Yet many of these companies have relocated to Dubai, Singapore, or Hong Kong, drawn by clearer regulations and friendlier tax regimes. Without swift action, India risks losing not only trading volumes but also intellectual capital, venture investment, and technological leadership.
A clear regulatory environment could stem this exodus by allowing exchanges, custodians, and blockchain-based fintech firms to operate transparently within India’s legal framework. This would enable the government to capture tax revenue while integrating crypto innovation into the broader fintech ecosystem. Ultimately, regulation is not about control—it is about credibility, stability, and the ability to harness innovation for national benefit.
Consumer protection and market discipline
Investor safety must be central to any policy. Regulation should mandate risk disclosures, custody norms, and grievance-redress mechanisms similar to those in the securities market. SEBI’s role should evolve from restrictive oversight to proactive engagement, emphasising investor education and responsible participation. By publishing advisories, setting disclosure norms, and promoting transparency, SEBI can help retail investors understand risks without denying them access.
A phased rollout offers a practical path forward: exposure to highly volatile assets could initially be restricted to high-net-worth investors, while retail investors gain access through regulated exchange-traded funds (ETFs) and diversified crypto products. This approach would allow India to build regulatory capacity while fostering a disciplined, informed market.
Taxation reform and fiscal reality
The government’s current 30 per cent tax rate and 1 per cent TDS have produced negligible revenue because most active traders now use offshore platforms. A more rational tax structure, aligned with capital-gains norms applicable to equities, would encourage trading within India’s jurisdiction and expand the formal tax base. Over time, this shift could increase fiscal transparency, reduce illegal flows, and attract legitimate foreign investment into the digital-asset sector. A rational tax policy would also signal that India views crypto as a financial instrument deserving of mature governance rather than punitive control.
Global financial centres such as Singapore, the UAE, and Hong Kong are competing to become crypto hubs by offering clarity, legal certainty, and moderate taxation. India, with its large consumer base and deep fintech expertise, can still seize this opportunity—but hesitation carries a cost. By introducing a comprehensive, risk-based crypto framework in the upcoming parliamentary session, the government can protect investors, attract global capital, and strengthen the rupee’s position in cross-border digital trade.
Crypto assets are not a passing fad; they represent the next frontier of global finance. India can either shape this evolution or remain a bystander. The path forward demands a clear, coordinated, and pragmatic policy—one that balances innovation with stability, risk with reward, and ambition with responsibility. If India acts decisively now, it can position itself as a leader in digital finance rather than a follower in the age of financial transformation.
Chirayu Sharma is an independent researcher.
Dr Badri Narayanan Gopalakrishnan is Fellow, NITI Aayog. Views expressed are personal.