No Policy Paper, No Regulator: Uncertainty Clouds $95 Billion Indian Crypto Market

India's crypto industry has been pushed back into regulatory limbo after the government decided to shelve its long‑pending discussion paper, signalling that there is no immediate policy move planned.

Senior industry sources say the pause on policy, as was explicitly confirmed in parliament, comes amid sustained resistance from the Reserve Bank of India, which remains firmly opposed to legitimising crypto trading, even as the government signals that there is no intent to ban cryptocurrencies outright.

The lack of a discussion paper has effectively frozen the policy conversation. Seven years after the debate on crypto regulation began, India still does not have a single regulator willing to formally take charge of the sector, sources say. Instead, oversight has evolved in fragments, with disclosures to the Financial Intelligence Unit (FIU) forming the backbone of what industry executives describe as de facto regulation.

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“There is monitoring, there is taxation, but there is no comprehensive framework that defines licensing, market conduct or investor protection,” one senior industry source says.

Globally, the crypto market is valued at about $2.37 trillion. Industry estimates suggest Indian investors hold close to $95 billion worth of crypto assets, making India one of the largest retail participation markets despite the absence of formal regulation.

Recent events have sharpened scrutiny. The arrest of CoinDCX co-founders Sumit Gupta and Neeraj Khandelwal over allegations linked to false identity fraud reinforces concerns about governance risks in the absence of a clear regulatory framework. Industry executives say such episodes tend to taint even compliant players, making already difficult conversations with banks, investors and partners even harder.

Banking access continues to be one of the industry's most persistent challenges. Crypto firms say accounts often get blocked or services withdrawn within months, despite operating legally and complying with disclosure norms.

Access to capital has also tightened. Investors remain wary of committing long‑term funds to an industry where regulatory outcomes are unclear and timelines are undefined. Executives say funding discussions now routinely stall on policy risk rather than business fundamentals, slowing expansion plans and product development.

Taxation has emerged as another structural pain point. The industry continues to operate under a 30 percent flat tax on gains, along with a 1 percent tax deducted at source on every transaction. Market participants argue that the transaction‑level TDS, especially without allowing losses to be set off, has drained onshore liquidity.

Beyond trading and liquidity, industry participants warn that current policy design is quietly driving builders out of the country. “The TDS that is supposed to be deducted on every VDA transaction technically also applies to smart contract deployments and every time gas fees are paid or transferred,” Subha Chugh, a Web3 policy and legal expert.

Chugh said this has pushed Indian founders to incorporate and build outside the country despite India having deep developer talent. She cited Polygon as an example of a globally significant blockchain project that originated in India but eventually moved out. In her assessment, many global crypto projects today have Indian founders, but few are built from India because the regulatory environment is perceived as unpredictable and restrictive.

The impact is visible in trading patterns. While global crypto trading volumes are edging towards $100 billion a day, volumes on Indian exchanges are a fraction of what they were at their 2021 peak. The decline, executives say, is not driven by lack of interest, but by structural disincentives created by taxes and regulatory ambiguity.

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Investor behaviour has also shifted. Indian retail portfolios are increasingly concentrated in Bitcoin and Ethereum, with Bitcoin estimated to account for about 62 percent of holdings, higher than global averages. Mid‑cap and high‑risk tokens have largely fallen out of favour as regulatory uncertainty persists. At the same time, stablecoins such as USDT and USDC are seeing increased use as investors look for relative stability in volatile markets.

Adding a unique India‑specific layer is the rise of the digital rupee. The retail central bank digital currency ecosystem has crossed ₹1,000 crore in monthly transactions, providing a regulated entry point into digital assets. However, industry executives say this does not address the unresolved status of private cryptocurrencies or the broader Web3 ecosystem.

Despite the policy stalemate, engagement with the government continues. Dilip Chenoy, Chairman of the Bharat Web3 Association, said the industry remains in regular contact with regulators and policymakers. “We are in continuous dialogue with government stakeholders and regulators, sharing feedback from the industry on an ongoing basis,” Chenoy said.

For now, however, dialogue has not translated into policy movement. With no central authority identified, and the RBI maintaining a hard line, the industry remains stuck between compliance and uncertainty.

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