India's Evolving Crypto Regulatory Framework and Its Impact on Market Participants

India's cryptocurrency market has entered a new phase of regulatory maturity in 2025, marked by aggressive enforcement, legislative clarity, and a recalibration of risks and opportunities for market participants. The interplay between the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Finance Ministry has created a multi-agency framework that is reshaping the landscape for compliant crypto exchanges and global players. This analysis examines the evolving regulatory environment, its implications for investors, and the strategic imperatives for navigating India's crypto market.

Regulatory Developments: A Tightening Noose

The cornerstone of India's 2025 regulatory evolution is the Virtual Digital Assets (VDA) Income Tax Amendment Bill, which expanded the definition of VDAs to include NFTs and undisclosed income while maintaining a 30% tax rate on gains. Simultaneously, the March 2023 PMLA VASP Notification classified crypto exchanges, wallets, and mining pools as "reporting entities," mandating compliance with AML and KYC protocols. This move effectively ended regulatory ambiguity, placing centralized and semi-decentralized platforms under strict scrutiny.

The RBI has remained skeptical, with Deputy Governor T. Rabi Sankar describing Bitcoin as "speculative with no intrinsic value" and warning of systemic risks from stablecoins. Meanwhile, SEBI has taken a more active role in monitoring crypto tokens resembling securities, signaling a broader regulatory convergence. These developments reflect a fragmented but increasingly coordinated approach to oversight, with enforcement actions intensifying against non-compliant platforms.

Enforcement Actions: A Harsh Reality Check

India's regulatory authorities have demonstrated a willingness to act decisively. In 2025, the Financial Intelligence Unit (FIU-IND) issued show-cause notices to major global exchanges like Binance, KuCoin, and Bybit for non-compliance with PMLA obligations. Bybit, for instance, was fined ₹9.27 crore (approximately $1 million) in January 2025, underscoring the financial penalties for non-compliance. Enforcement has extended beyond domestic players, with offshore platforms facing URL blocking and restricted access to Indian users.

The Directorate General of GST Intelligence has also pursued aggressive tax enforcement, including a ₹722.43 crore (about $78 million) tax claim against Binance. These actions highlight the risks of operating in India without full compliance, particularly for platforms that assume offshore status or decentralization provides regulatory immunity.

Market Growth: A Contradictory Trajectory

Despite regulatory headwinds, India's crypto market is projected to grow rapidly. The market, valued at $2.6 billion in 2024, is expected to reach $15 billion by 2035, driven by a user base of over 119 million traders. Institutional participation has surged, with platforms like CoinDCX, CoinSwitch, and Mudrex reporting 30-50% year-on-year growth in institutional investments.

This growth is underpinned by India's position as the global leader in crypto adoption for three consecutive years, according to TRM Labs' 2025 Country Crypto Adoption Index. The rise of tokenized financial instruments and blockchain innovation in cities like Bengaluru and Hyderabad further signals a maturing ecosystem. This growth is underpinned by India's position as the global leader in crypto adoption.

Opportunities for Compliant Exchanges

For global players entering India's market, compliance is no longer optional-it is existential. The COINS Act 2025, a proposed legislative framework, aims to formalize crypto regulation and align India with global standards like the EU's MiCA and the U.S. GENIUS Act. This law could provide clarity on taxation, investor protections, and cross-border transaction rules, creating a more predictable environment for exchanges.

Compliant platforms must adopt activity-based compliance strategies, focusing on AML protocols, transaction monitoring, and user verification. For instance, Coinbase reopened operations in India in 2025, emphasizing its commitment to PMLA compliance and expanding fiat-to-crypto services. Similarly, CoinDCX and Mudrex have positioned themselves as leaders by prioritizing FIU-IND registration and transparent reporting.

Risks and Strategic Considerations

The primary risks for market participants include high compliance costs, regulatory uncertainty, and the potential for sudden enforcement actions. For example, the RBI's skepticism toward stablecoins and Bitcoin could lead to further restrictions, particularly if policymakers perceive systemic risks. Additionally, the lack of a dedicated crypto regulatory body-reliance on PMLA and tax laws-creates ambiguity for innovators.

Global players must also navigate cultural and operational challenges, such as India's fragmented digital infrastructure and the need for localized user experiences. Platforms that fail to adapt to these nuances risk alienating a market where trust and accessibility are paramount.

Conclusion: A Market in Transition

India's crypto market is at a crossroads. While regulatory enforcement and taxation pose significant challenges, the sector's growth trajectory and institutional adoption present compelling opportunities for compliant exchanges. The key to success lies in strategic alignment with India's regulatory priorities: robust AML/KYC protocols, transparent tax reporting, and a willingness to engage with policymakers.

As the COINS Act 2025 moves closer to implementation, the global crypto industry must prepare for a regulatory environment that balances innovation with oversight. For those who navigate this landscape with agility and foresight, India's crypto market offers a unique blend of risk and reward-one that could redefine the future of digital assets in the world's fastest-growing economy.