India’s Crypto Lack of Clear Policies Leaves Investors and Authorities Struggling
India’s crypto currency market is expanding rapidly, driven by technological innovation and increasing public interest. According to Chainalysis’ 2024 Geography of Crypto report, India leads the world in crypto adoption and has emerged as a major hub for blockchain startups and digital asset trading. However, this rapid growth comes with a significant challenge—an absence of a clear regulatory framework. This gap makes it difficult for law enforcement agencies (LEAs) to monitor and take action against crypto-related crimes, fostering illicit activities while leaving legitimate investors in a legal gray area.
Globally, crypto-related crimes have been on the rise. Chainalysis reported that illicit crypto transactions totaled around $46.1 billion in 2023, rising to over $51 billion in 2024. India, with its large user base but limited regulatory oversight, faces an even greater risk. While expanding the Prevention of Money Laundering Act (PMLA) to cover crypto businesses in March 2023 was a step forward, significant challenges remain. Tracking suspicious transactions and apprehending criminals remains a daunting task for Indian law enforcement, particularly when offenders operate across multiple states or international borders.
Fragmented Enforcement Weakens Oversight
India’s federal governance structure further complicates crypto regulation. Law enforcement and policing fall under state governments, leading to inconsistent cybercrime enforcement across regions. While some states have advanced cybercrime investigation units, many lack the expertise and resources to handle complex crypto-related offenses. This disparity allows criminals to exploit weak enforcement by committing crimes in one state and relocating to another where policing is less stringent.
This regulatory vacuum not only emboldens criminals but also creates obstacles for legitimate crypto businesses. Startups and exchanges frequently face account freezes or prolonged legal scrutiny due to unclear regulatory guidelines at the local level. Meanwhile, the central government’s policy focus appears to be more on revenue collection, as seen in the 30% tax on crypto profits and the 1% Tax Deducted at Source (TDS). These measures have driven many Indian traders to foreign platforms, making cross-border crime monitoring even more challenging for law enforcement.
Global Lessons in Crypto Regulation
Several countries have taken decisive steps to regulate the crypto industry. The European Union (EU) has implemented the Markets in Crypto-Assets (MiCA) regulation, ensuring consumer protection, market transparency, and anti-money laundering measures. In the United States, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) oversee various aspects of the crypto market, providing a structured regulatory environment. Nations like Brazil and Dubai have also introduced dedicated regulatory bodies to oversee digital assets. In contrast, India has yet to assign any specific authority to regulate Virtual Digital Assets (VDAs).
As crypto technology continues to evolve, law enforcement faces increasing challenges. Innovations such as Decentralized Finance (DeFi), stablecoins, and non-fungible tokens (NFTs) have disrupted traditional financial monitoring. A report by CipherTrace indicates that over 80% of crypto thefts in 2022 were linked to DeFi exploits. In India, where law enforcement remains fragmented and cybercrime investigation capabilities are limited, criminals often evade detection by using “chain-hopping” and other privacy-enhancing tools.
Urgent Need for Regulatory Action
Several high-profile crypto crimes have already impacted India. The WazirX hack in 2022 resulted in over $230 million in stolen assets after cybercriminals compromised private keys. In this case, India’s Cyber Crime Coordination Centre (I4C) struggled to track the perpetrators due to the lack of a standardized data-sharing system across jurisdictions. Additionally, in an illegal lending app scam, the Enforcement Directorate (ED) seized assets worth ₹190 crore, yet enforcement efforts remain slow and disjointed.
To tackle these growing challenges, India urgently needs a robust and transparent regulatory framework. Key measures should include:
- Establishing a dedicated national crypto regulatory agency to standardize policies across states and provide clear compliance guidelines.
- Enhancing inter-state data-sharing mechanisms to improve law enforcement coordination and ensure swift action against cybercriminals.
- Investing in blockchain forensic tools and cybercrime training to equip agencies with the expertise needed to track and combat crypto-related offenses.
- Promoting public-private partnerships to support legitimate crypto businesses while enforcing strict anti-fraud measures.
If India wants to secure its rapidly expanding crypto economy and maintain public trust in digital assets, it must implement a well-defined regulatory framework without further delay. A proactive approach will not only curb illicit activities but also foster innovation, enabling India to retain its leadership position in the global digital asset market while ensuring economic stability and national security. Now is the time for decisive action to create a safe, transparent, and sustainable crypto ecosystem.
Also read :- Bitcoin is the most important invention in the history of the world since the Internet
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