Indian Investors Embrace Crypto Derivatives as Flexibility Outshines Regulatory Uncertainty

Indian retail investors are shifting toward crypto derivatives as spot trading declines, driven by a combination of regulatory ambiguity, evolving market dynamics, and the appeal of advanced trading instruments, according to Nithin Kamath, CEO of Zerodha, one of India's largest brokerage platforms. Despite the unclear regulatory landscape—often termed a “gray zone” by analysts—derivatives activity on Indian crypto exchanges has surged, reflecting a broader trend in which traders seek tools to hedge, speculate, and diversify their portfolios.

Kamath highlighted that wealthy individuals and institutional investors are increasingly allocating capital to digital assets, influenced by rising prices and improved access to trading platforms. The surge in derivatives adoption is further supported by growing interest in products like Bitcoin futures, exchange-traded products, and structured strategies, which are now viewed as core components of modern investment portfolios. This shift is also supported by the broader financial ecosystem: regulatory bodies like the Securities and Exchange Board of India (SEBI) are reportedly extending the tenure of equity derivatives, signaling a potential alignment with crypto derivatives in the near future.

The appeal of crypto derivatives lies in their flexibility and ability to function in volatile markets. Unlike spot trading, where investors must predict upward price movements, derivatives enable traders to profit from both bullish and bearish conditions. This two-way exposure, combined with leverage—albeit with risk—has attracted a growing segment of Indian investors, particularly those with prior trading experience in equity derivatives. For instance, perpetual futures contracts, which do not have a fixed expiration date, are gaining traction due to their ability to allow indefinite holding periods, supported by mechanisms like funding rates that keep prices aligned with spot markets.

Meanwhile, the regulatory environment remains a critical factor shaping the trajectory of crypto derivatives in India. While the government has not yet imposed a comprehensive regulatory framework, exchanges have taken steps to align with local compliance standards. For example, Binance, a global exchange with a presence in India, registered with the Financial Intelligence Unit (FIU-IND) in 2024 after paying a $2.25 million fine for non-compliance with anti-money laundering regulations. This move has helped to legitimize the platform in the Indian market, where compliance and transparency are increasingly seen as key differentiators.

The rise of derivatives also reflects a broader shift in investor behavior, with more Indians viewing crypto as an asset class rather than a speculative novelty. Platforms like MEXC, CoinDCX, and ZebPay are catering to this demand by offering advanced tools such as margin trading, staking, and automated trading bots. These features are particularly appealing to investors seeking to manage risk and capitalize on market volatility. In a market where regulatory uncertainty persists, derivatives offer a way for traders to hedge their spot positions, providing a layer of protection against sudden price swings.

As the sector matures, analysts suggest that the integration of real-world assets with crypto derivatives could further drive adoption. For example, tokenized representations of equities and ETFs are being traded on platforms like Kraken and Bybit, and perpetual futures linked to traditional assets are gaining momentum. These products allow traders to bet on price movements without owning the underlying asset, reducing barriers to entry and expanding the pool of potential participants.

Source: [1] Zerodha's Kamath on Why Indian Traders Are Fleeing Spot for Crypto Derivatives (https://cryptorank.io/news/feed/7e77e-zerodhas-kamath-on-why-indian-traders-are-fleeing-spot-for-crypto-derivatives) [2] 11 Best Crypto Exchanges & Apps in India for 2025 (https://nftevening.com/best-crypto-exchange-in-india/) [3] Perpetual Futures + Real World Assets = ? (https://www.forbes.com/sites/digital-assets/2025/08/25/perpetual-futures--real-world-assets--/)