India's Regulatory Crackdown on Offshore Crypto Platforms: Reshaping Global Markets and Investment Flows

India's 2025 regulatory crackdown on offshore crypto platforms has emerged as a pivotal moment in the global cryptocurrency landscape. By targeting 25 exchanges-including BingX, LBank, and Paxful-for anti-money laundering (AML) violations, the Financial Intelligence Unit-India (FIU-IND) has signaled a hardening stance under the Prevention of Money Laundering Act (PMLA), 2002, according to a a CryptoNews report. These enforcement actions, coupled with a 30% tax on crypto profits and a 1% tax-deducted-at-source (TDS) on transactions, have not only reshaped India's domestic market but also triggered a reconfiguration of global investment flows and alternative asset strategies.

Global Market Structure Implications

The Indian government's aggressive enforcement has fragmented the crypto market, pushing speculative trading volumes to offshore and decentralized exchanges. For instance, platforms like Binance and KuCoin returned to India after settling compliance issues and registering with the FIU-IND, per CryptoNews, while others, such as OKX, exited the market entirely in 2024 as reported by the same outlet. This bifurcation reflects a broader trend: jurisdictions with stringent regulatory frameworks are driving capital toward less regulated or decentralized alternatives.

India's alignment with global compliance standards further amplifies this shift. CryptoNews also notes that the country plans to implement the OECD's Crypto-Asset Reporting Framework (CARF) by April 2027 and aims to join the Multilateral Competent Authority Agreement (MCAA) in 2026. These moves will enable automatic cross-border reporting of crypto transactions, enhancing transparency but also increasing operational costs for global platforms. As a result, smaller exchanges lacking compliance infrastructure may struggle to compete, consolidating market power among larger, regulated entities.

Alternative Investment Opportunities

While high taxes and regulatory ambiguity have driven 5 million Indian traders offshore, according to CryptoNews, they have also spurred innovation in alternative investment vehicles. Decentralized finance (DeFi) and peer-to-peer (P2P) platforms are gaining traction, with 44% of Indians learning about crypto through YouTube and increasingly relying on self-custody solutions, according to a CryptoRobotics analysis. The COINS Act 2025, which abolished the 30% tax and 1% TDS, has further catalyzed this shift by introducing the Crypto Asset Regulatory Authority (CARA) and promoting self-custody rights (as covered in the CryptoRobotics analysis).

Meanwhile, India's Digital Rupee (CBDC) is emerging as a tax-efficient alternative to private crypto assets. With the Reserve Bank of India (RBI) and the Ministry of Finance collaborating to clarify regulatory oversight, institutional investors are beginning to explore on-chain infrastructure projects, according to an IndWallet analysis. For example, Coinbase's re-entry into India underscores the potential for regulated platforms to capitalize on the country's 110–115 million crypto investors (as highlighted by IndWallet).

However, challenges persist. The "crypto brain drain" has seen Web3 talent migrate to Dubai and Singapore, where regulatory environments are more accommodating, a dynamic underscored by CryptoNews. This exodus risks stifling India's long-term innovation ecosystem, even as its 69% year-on-year increase in on-chain activity highlights its enduring appeal as a market.

Conclusion

India's regulatory crackdown is a double-edged sword: it has enhanced AML compliance and attracted institutional interest in regulated infrastructure, but it has also fragmented markets and driven speculative capital offshore. For global investors, the key lies in balancing risk and opportunity. Those who navigate India's evolving landscape-leveraging its large user base while hedging against regulatory volatility-stand to benefit from its position as the world's top crypto adopter, as reported by CryptoNews. As the OECD and EU MiCA frameworks converge with India's policies, the next phase of global crypto markets will likely be defined by jurisdictions that harmonize innovation with compliance.