The Risks and Opportunities in Emerging Market Crypto Regulation

India’s crypto market has become a microcosm of the broader tensions between innovation and regulation in emerging economies. Over the past two years, the country has witnessed a surge in high-profile crypto crimes—from multi-level marketing (MLM) scams to ransomware schemes and exchange hacks—while its judicial system has responded with unprecedented rigor. These developments are reshaping the investment landscape, creating both risks and opportunities for crypto assets.

The Risks: A Landscape of Volatility and Vulnerability

India’s crypto ecosystem has been plagued by systemic vulnerabilities. In 2023, a ₹1,646 crore ($240 million) MLM scam exploited privacy coins and decentralized exchanges (DEXs) to defraud investors, exposing gaps in oversight [1]. The 2024 WazirX hack, which erased $234 million in user funds, further highlighted the fragility of custodial systems and the absence of a legal framework for crisis management [2]. By 2025, the scale of thefts had escalated dramatically: the ByBit exploit alone accounted for $1.5 billion in losses, while the CoinDCX breach in July 2025 added $44.2 million to the toll [2].

These incidents have eroded investor confidence, particularly among retail participants. A Ponzi scheme in 2025, which lured thousands from rural areas with fake crypto dashboards and hawala networks, underscored how bad actors exploit the sector’s nascent infrastructure [4]. The use of privacy coins and tumbling services to obscure fund flows has also complicated investigations, revealing the challenges of enforcing transparency in a decentralized system [4].

Judicial Responses: A New Era of Accountability

India’s courts have increasingly treated crypto crimes with the gravity they warrant. In a landmark 2025 case, a Gujarat court sentenced 14 individuals—including 11 police officers—to life imprisonment for a 2018 Bitcoin ransom scheme involving 176 BTC and ₹32 crore [1]. The Delhi High Court similarly denied bail to Umesh Verma, a cryptocurrency scam accused of defrauding 61 investors, citing the “untraceable nature of crypto transactions” and their economic implications [3]. These rulings signal a judicial shift toward prioritizing investor protection and regulatory compliance, even as they grapple with the unique challenges of digital assets.

The most consequential judicial action came in the $240 million fraud case affecting 80,000 investors. The Himachal Pradesh High Court denied bail to Abhishek Sharma, emphasizing the “societal impact of such offenses” and rejecting constitutional arguments for leniency [2]. Such decisions not only deter potential fraudsters but also send a message to global investors: India’s judiciary is willing to enforce accountability in a sector long plagued by ambiguity.

Regulatory Evolution: From Deterrence to Framework Building

The Indian government has responded to these crises with a mix of punitive measures and proactive regulation. The proposed COINS Act, which would establish a Crypto Assets Regulatory Authority (CARA), aims to create a structured framework for licensing, investor protections, and anti-money laundering (AML) compliance [3]. Meanwhile, anti-MLM laws introduced in 2023 have targeted fraudulent schemes, though enforcement remains inconsistent [1].

Regulators are also recalibrating their stance amid global shifts. A senior official recently stated that India is “reviewing its position due to global changes,” hinting at potential alignment with international standards like the Financial Action Task Force (FATF) guidelines [5]. This signals a recognition that India’s crypto market cannot thrive in isolation; it must balance innovation with safeguards to attract institutional capital.

Opportunities in the New Normal

While the risks are stark, India’s regulatory trajectory also presents opportunities. The judicial crackdown has forced platforms to adopt stronger security protocols and transparency measures. For instance, the CoinDCX breach in 2025 prompted a nationwide conversation about the need for real-time transaction monitoring and insurance mechanisms [2]. Similarly, the COINS Act’s emphasis on CARA could create a sandbox environment for compliant startups, fostering innovation without sacrificing investor trust [3].

Institutional investors are beginning to take notice. The denial of bail in high-profile cases and the establishment of CARA suggest a maturing legal infrastructure that could attract foreign capital. As one analyst noted, “India’s crypto market is at a tipping point—either it becomes a haven for fraud or a model for emerging market regulation” [5].

Conclusion: Balancing Caution and Confidence

India’s crypto story is a cautionary tale and a case study in resilience. The surge in crimes has exposed the sector’s vulnerabilities, but the judicial and regulatory responses demonstrate a commitment to addressing them. For investors, the key lies in navigating this duality: hedging against risks through due diligence while capitalizing on the opportunities created by a more structured ecosystem.

As the COINS Act moves through Parliament and courts continue to set precedents, one thing is clear: India’s crypto market will not remain in its current state. The question is whether it will evolve into a regulated, institutional-grade asset class—or collapse under the weight of its own chaos.

Source:
[1] Crypto Crime and Regulation: A Catalyst for Institutional Adoption in India [https://www.ainvest.com/news/crypto-crime-regulation-catalyst-institutional-adoption-india-2508/]
[2] Crypto security: Crypto thefts in 2025 surpass $2.17 billion [https://timesofindia.indiatimes.com/business/india-business/crypto-security-crypto-thefts-in-2025-surpass-2-17-billion-indias-coindcx-breach-adds-to-global-surge-driven-by-bybit-mega-heist/articleshow/122816849.cms]
[3] Crypto Crime and Regulation: A Catalyst for Institutional Adoption in India [https://www.ainvest.com/news/crypto-crime-regulation-catalyst-institutional-adoption-india-2508/]
[4] Cracks in the Crypto Dream: Unpacking India’s Biggest-Ever Scam [https://www.linkedin.com/pulse/cracks-crypto-dream-unpacking-indias-biggest-ever-scam-rushda-khan-4vymc]
[5] India reviewing crypto position due to global changes [https://www.reuters.com/technology/india-reviewing-crypto-position-due-global-changes-senior-official-says-2025-02-02/]