Legal Recognition of Cryptocurrencies as Property in India: Reshaping Risk Dynamics and Custody Models

In October 2025, the Madras High Court delivered a landmark ruling that redefined the legal status of cryptocurrencies in India, classifying them as "property" under Indian law, according to The Economic Times. This decision, rooted in a case involving frozen XRP tokens following a cyberattack on the WazirX exchange, has far-reaching implications for risk management, custody models, and investor protections in the crypto ecosystem. By anchoring digital assets within the framework of property rights, the court has not only clarified legal ambiguities but also forced exchanges and investors to rethink how they handle, secure, and govern these assets.

A New Legal Framework for Digital Assets

The Madras High Court's judgment explicitly stated that cryptocurrencies, despite being intangible and not legal tender, possess the essential characteristics of property: they can be owned, transferred, and held in trust, as Medianama noted. This classification aligns India with jurisdictions like the UK and Singapore, where digital assets are increasingly treated as property, as Gadgets360 explained. The ruling also reinforced that virtual digital assets (VDAs) fall under Section 2(47A) of the Income Tax Act, 1961, further embedding them into India's regulatory lexicon.

For investors, this means a shift from speculative uncertainty to a clearer legal recourse. If an exchange misappropriates or loses assets-as in the case of WazirX's hack-investors can now argue their case in court, demanding the return of their property. The court's decision to block WazirX's "socialization of losses" plan, which sought to redistribute user assets post-hack, underscores this point, according to CryptoNewsLand. User assets are now legally recognized as trust property, and exchanges cannot dilute them without explicit contractual agreements.

Custody Models: From Opacity to Accountability

The ruling has directly impacted how crypto exchanges manage custody. Previously, many platforms operated with opaque practices, often commingling user funds with corporate assets. The Madras High Court's decision mandates that exchanges hold client assets separately, implementing robust audit, KYC, and anti-money laundering (AML) protocols, as CryptoNewsLand reported. This shift mirrors global best practices, where custodians like Coinbase and Binance have long segregated user funds to mitigate risks.

For Indian exchanges, this means higher operational costs but also greater trust. The court's emphasis on fiduciary duties-requiring exchanges to act as trustees-forces platforms to adopt insurance, multi-signature wallets, and cold storage solutions, as Decrypt reported. These measures reduce counterparty risk for investors, who no longer have to rely solely on the solvency or integrity of an exchange.

Risk Management: From Reactive to Proactive

The legal recognition of crypto as property also reshapes risk management strategies. Exchanges must now proactively address cybersecurity threats, as any breach could trigger lawsuits over asset mismanagement. The WazirX case exemplifies this: the court's intervention not only protected individual investors but also set a precedent for holding exchanges accountable for negligence, as Decrypt reported.

For investors, the ruling reduces reliance on informal dispute resolution. Previously, users had limited recourse if an exchange collapsed or was hacked. Now, they can seek injunctions, demand audits, or even pursue criminal charges for asset misappropriation. This legal empowerment is likely to drive adoption, as investors gain confidence in the system's ability to protect their holdings.

The Road Ahead: Challenges and Opportunities

While the Madras High Court's ruling is a milestone, challenges remain. The absence of a comprehensive federal regulatory framework means that this precedent could face scrutiny at the Supreme Court level, as Medianama noted. Additionally, jurisdictional complexities-such as cases involving cross-border exchanges-remain unresolved.

However, the ruling provides a foundation for future legislation. By treating crypto as property, India's judiciary has signaled to policymakers that a regulatory framework must evolve to address custody, taxation, and investor protection. This could accelerate the passage of a dedicated crypto bill, harmonizing legal interpretations with market realities.

Conclusion

The Madras High Court's 2025 ruling marks a turning point in India's crypto journey. By recognizing digital assets as property, the court has forced exchanges to adopt transparent custody models and robust risk management practices. Investors, in turn, gain legal tools to protect their assets, reducing the systemic risks that once plagued the sector. While regulatory gaps persist, this decision sets a clear trajectory: crypto is no longer a speculative fringe asset but a legitimate property class demanding institutional rigor.