India’s crypto regulation: India has had a long and uneasy relationship with cryptocurrencies. They are widely traded but only partially acknowledged. Traders back them. Regulators tax them harshly. The law remains uncertain. The CoinDCX episode shows what happens when a market grows faster than the institutions meant to police it.
An investor alleged that individuals claiming links to CoinDCX had promised unusually high monthly returns. The complaint involved a fraudulent website impersonating the exchange. The company’s co-founders were questioned by the police and later granted bail after the court found no prima facie evidence against them. CoinDCX said it had no role in the alleged fraud, describing it as an impersonation case that did not affect its operations.
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Crypto regulation in India remains unresolved
The episode has revived the question India has kept postponing: what exactly is the regulatory status of crypto?
Private cryptocurrencies are not recognised as legal tender. Nor are they banned. The Reserve Bank of India has long warned of risks to financial stability, consumer protection and monetary sovereignty. It once barred banks from dealing with crypto businesses, until the Supreme Court set aside that circular in 2020. Since then, the official position has changed little in substance. Trading continues, but in a broader legal and supervisory grey zone.
The government’s approach has been clearer on taxation than on regulation. A 30% tax on gains and 1% tax deducted at source on transactions did not legitimise crypto. It merely signalled that the state would collect revenue from activity it neither endorses nor properly regulates. Crypto in India is not banned or accepted. It is tolerated, taxed and left largely undefined.
Yet this is not a complete legal vacuum. Since 2023, virtual digital asset service providers have been brought under the Prevention of Money Laundering Act reporting framework, with FIU-India registration, record-keeping and reporting obligations. FIU-India has also acted against offshore platforms serving Indian users without complying with these requirements. That means India now has an anti-money-laundering layer for crypto, but still lacks a coherent regime for market conduct, custody, disclosures and retail investor protection. That gap is precisely the problem.
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Crypto exchanges face the cost of policy ambiguity
That halfway house has produced predictable results. Trading volumes on domestic exchanges have weakened as users move to offshore platforms that are harder to monitor. Web3 startups build for global markets while operating from India, always under regulatory shadow. The result is an uneven market in which compliant firms bear costs that evasive operators often escape.
The CoinDCX impersonation case should be read in that context. In the absence of a clear framework, legitimate platforms face reputational damage for misconduct they may not have committed. When fraudsters can mimic a known exchange with ease, trust erodes across the ecosystem, not just for one firm.
Investor protection in crypto cannot rely on caution alone
India is now at a point where consumer awareness is limited, enforcement is patchy and regulation is incomplete. Fraud is not unique to crypto, but crypto makes fraud faster, borderless and harder to reverse. A fake website, persuasive messages and the lure of double-digit monthly returns are enough to trap retail investors looking for quick gains.
Users do bear responsibility. Unlike traditional finance, crypto offers no robust safety net of licensing, disclosure rules and established grievance redress. But investor caution cannot substitute for regulation. A market with millions of users cannot be governed by warnings alone.
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India cannot postpone crypto policy forever
Other jurisdictions have moved ahead. The European Union has adopted a comprehensive framework through Markets in Crypto-Assets regulation. The United States has relied more heavily on enforcement. Different systems have chosen different routes, but they have accepted one basic reality: crypto cannot be ignored.
India, too, signalled seriousness during its G20 presidency by pushing for global coordination on crypto regulation. But global consensus is slow, and domestic uncertainty cannot be defended indefinitely in its name.
Part of the hesitation is understandable. Crypto behaves at once like an asset, a payment instrument and a technology stack. It does not fit neatly within existing regulatory boxes. That raises a basic institutional question: should oversight lie with the Securities and Exchange Board of India, the Reserve Bank of India, or a new framework that draws from both?
The hesitation also runs deeper. Private crypto challenges the state’s traditional control over money and finance. For India, where financial inclusion has advanced through state-backed digital public infrastructure, that challenge is not theoretical. It goes to the architecture of trust the state has spent years building.
Yet resistance is not a policy. Nor is punitive taxation. India must decide whether it wants to regulate crypto, restrict it further, or define narrow lawful uses under strict supervision. What it cannot do is preserve ambiguity and expect markets to behave responsibly on their own.
The lesson from CoinDCX is not that every crypto firm is suspect. It is that a vacuum in investor protection invites disorder. Where the law is vague, fraud thrives, investors remain exposed, and even credible firms pay the price.