Why Does India Keep Crypto in a Grey Zone?
9 Jan 2026 7:05 AM IST
Last year, hackers broke into WazirX, once one of India’s largest crypto exchanges. They stole more than 230 million dollars’ worth of cryptocurrency and hit thousands of Indian investors.
One of them is 21-year-old Krish. He still holds about five lakh rupees in crypto. Now, he’s moving his money away from Indian exchanges to American ones.
Krish’s decision highlights a larger problem in India’s crypto market.
India hasn’t banned crypto trading. But it hasn’t legalised it either.
The RBI doesn’t issue crypto, doesn’t back it, and doesn’t recognise it as money. At the same time, the government taxes crypto gains at a steep 30%.
Despite these roadblocks, India has one of the largest crypto user bases in the world. More than 100 million Indians hold or trade crypto worth billions of dollars.
So why has India kept crypto in a grey zone?
And what does that choice cost everyday investors?
Listen to the latest episode of The Signal Brief to find out.
The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts. To check out the rest of our work, go to www.thecore.in
NOTE: A machine transcribed this episode. A human has looked at this text but there might still be errors. Please refer to the audio above, if you need to clarify something. If you want to give us feedback, please write to us at feedback@thecore.in.
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TRANSCRIPT
Sakshi: I have recently started, like a month or two months ago, and that the crypto I'm currently into it, it's Bitcoin because, you know, it's very famous and popular in trend right now.
Kudrat (Host): That was Sakshi, who’s pursuing a master’s degree in corporate banking and insurance. She told The Signal Brief that she decided to invest in crypto because..
Sakshi: Uh, the way high risk and high return thing. That's why I am attracted to it.
Kudrat (Host): Sakshi told me that she decided to buy crypto soon after she wrote a research paper on it. While researching, Sakshi also learned of the many roadblocks to investing in cryptocurrency in India.
For starters, the RBI doesn’t recognise crypto as legal tender. While India hasn’t banned its citizens from trading in cryptocurrency, RBI doesn’t issue crypto, control its supply, or back it in any way.
Indians also cannot use it as currency to pay for goods or services. The crypto space also comes with serious risks, including widespread scams.
Despite everything, investors like Sakshi keep coming back. Today, India has one of the largest crypto user bases in the world, driven largely by retail investors. Recent estimates suggest 119 million Indians hold or trade crypto worth around 4 billion USD, and that this market also has a CAGR of 18-19%.
Kudrat (Host): My name is Kudrat Wadhwa and you’re listening to The Signal Brief. We don’t do hot takes. Instead, we bring you deep dives into the how and why of consumer trends.
Pickleball’s supporters think it could be the next cricket. In this episode, we question if that’s true. We also ask, what actually makes a sport take off in India.
Kudrat (Host): First, the basics. Cryptocurrency is a digital asset that runs on blockchain technology and allows people to transfer value without relying on banks.
Globally, the early adopters of cryptocurrency were those passionate about the philosophy of decentralisation behind it. They wanted to challenge what they saw as the unfair dominance of the government and of banks over money.
In India, however, crypto arrived as a form of investment. Early Indian investors talked of returns, rather than of banking reform.
The Signal Brief spoke to one such early investor, on background; he didn’t want to share his name and wasn’t comfortable with us recording the conversation.
Let’s call him Mr. D. Mr D began investing in crypto in 2016 and 2017, when the market was still nascent in India.
A friend helped him navigate the market. He invested small amounts, a few thousand rupees at a time. Over the years, he accumulated Bitcoin.
By 2020, prices surged. Mr D said he used his crypto gains to repay a loan worth nearly a crore rupees.
Today, he holds no crypto. He says he regrets selling.
“I would’ve been able to pay back the loans anyway.. If I had kept bitcoin, then my money would’ve grown even more,” he told me.
Kudrat (Host): Mr. D was able to multiply his money, because he bought bitcoin at a good time.
And there lies the charm of crypto for many investors. It’s a financial asset that can turn small investments into large gains. On the flipside, it could wipe them off just as quickly.
That uncertainty unsettled regulators.
Different countries reacted in different ways.
China, for instance, banned crypto trading and mining, citing risks to financial stability and capital controls, meaning concerns that crypto could allow money to move out of the country beyond state oversight.
Others chose regulation over prohibition. In the United States, the government has allowed crypto markets to operate, but it has regulated them using existing securities and commodities laws.
India has taken a different path.
Instead of banning crypto or legalising it, Indian regulators left it in a grey zone. People can trade crypto, but the state refuses to recognise it as money or grant it legal backing.
And at the centre of this approach sits the RBI.
Kudrat (Host): The RBI has repeatedly warned that crypto poses risks to financial stability and consumer protection. I spoke to Shawata Kapat, a lawyer who specialises in cryptocurrency law, to learn more.
Shaswata: RBI’s governor, then governor, uh. The now governor, everybody has created a consistent pattern of the answers. Is that RBI doesn't want crypto assets to be permitted in India. RBI considers crypto as tulip trading.
Kudrat (Host): In the 17th century in the Netherlands, people speculated aggressively on tulips. Prices surged, then collapsed.
The RBI often compares crypto to tulips.
Shaswata: So the same things. RBI again and again said that crypto does not have any intrinsic value, means that it does not have any ability to stand on its own as asset class. So they're always dismissed it.
Kudrat (Host): Rather than legitimising crypto, India chose deterrence.
Right now, crypto investors have to pay a 30% tax on whatever profits they earn, in addition to a 1% TDS. And, unlike equities, they can’t offset their losses either.
To many investors, this feels punitive.
Syed Mohammad Ali, who The Signal Brief spoke to over Linkedin messages, said the problem is not just the fact that he has to pay tax on profits. He said that the government also taxes coin-to-coin trades even when no money comes into a bank account.
So, for example, say a buyer wants switches from bitcoin to ethereum, well that act could trigger a tax liability too. Syed said he finds the current regime to be deeply unfair.
Sakshi, the lawyer who we heard from earlier, reiterated a similar sentiment.
Sakshi: The tax bracket is pretty high. As a new crypto buyer, I can say that government is deducting tax. Okay? The income thing, they are doing it, but in return of it, we don't get any protection. Investor protection is not there.
Kudrat (Host): The Signal Brief spoke to Ashish Kumar. He’s a journalist who’s been covering crypto for several years. He says he understands why the Indian government’s current stance.
Ashish: The stance of the government is quite quietly correct because the, the knowledge about the awareness and knowledge about the cryptocurrency among the Indian user, uh, is not very, uh, like I can say, they’re not very educated. Uh, we have to see it as a demographically because we have a population of one 50 crore. Um, and that is a huge population to control and educate and aware, like to do awareness program, uh, to the, to the pop. Such a huge population. So what can, what happened when the, the advertising around the cryptocurrencies started India by the crypto exchanges? They were, they’re going like, uh, you can start, like, you can start owning Bitcoin with the only 10 rupees or a hundred rupees. But, uh, they tell me, can you own a Bitcoin with a hundred rupees?
Kudrat (Host): There’s a lot of misinformation in the crypto space right now. By charging a steep tax, the govt is basically trying to dissuade consumers.
There’s also many crypto scams. The most common among them is called ‘rug-pulling’. Here’s Ashish explaining what that means:
Ashish: They will, they launch a product. Uh, they will launch a coin or a product on January one, and they'll say, this will make you buy Lamborghini if you just invest $50 or a hundred dollars into it. What you will see after 15 days, your hundred dollars will be around, uh, $1,200 or $1,500. That is a huge amount of money. The people, what will they do? Uh, when you go to sleep, because the cryptocurrency is a 24/7 market, when you go to sleep, they just rug pull you, uh, with like, you don't even get to know. You'll not even get to get a chance to withdraw your money, and your hundred dollars will be 1 or 2 dollars.
Kudrat (Host): Because crypto markets run through the clock, losses can happen fast. And once money is gone, there’s often little recourse.
And then, there’s hacks. Just last years, hackers broke into one of India’s largest crypto exchanges, called Wazir X. They stole over $230 million worth of crypto, affecting thousands of Indian users.
YT clip: Wazirx Hack Explained
Kudrat (Host): The RBI further cites all these examples of scams and hacks to show why India is hesitant to legitimise crypto.
But the flip side is this: the lack of clear regulation also makes scams easier to run.
India now finds itself in a catch-22. Without regulation, investors remain vulnerable. With regulation, the state would have to legitimise a market it deeply distrusts.
Shaswata: Now without these guardrails, what other Indian ecosystem players, startups, and companies are doing in crypto, they're doing self regulations, means that if you ask me to study myself, I'll study so much. When you put a, a teacher in front of me and say that, hey, you want me to study in this way, I probably will do much better because I have a guidance right now. There is, in India, there is no guidance. Yeah. From a government. Government or not advisor regulator. And that's why everybody's trying to do the best, but it's still lacking. And that's where this breach is happening. So again, I, as I was talking earlier, it's a loop. Yeah. And that loop only can be stopped by the RBI, SEBI or the governor.
Kudrat (Host): Indian crypto users are also becoming impatient. The Signal Brief spoke to Krish, who’s 21 and lost money in the Wazir-X hack. He said that he still has about five lakh of investment in crypto but is thinking of switching his money away from Indian crypto exchanges to US-based ones.
Krish: And uh, so now I'm thinking, uh, so when you do the tax arbitrage and you invest in US stocks like Coinbase or MicroStrategy, and they tend to move in similar fashions like Bitcoin, so. It's good to invest in, but uh, in MicroStrategy or coin you get almost similar returns, but lower tax due to the tax arbitrage which is there. And you can also offset your losses there in US, but not in India.
Kudrat (Host): Crypto has existed in India for more than a decade. Over that time, the market has grown larger and more embedded in everyday investing.
But India still hasn’t decided what role crypto should play in its financial system.
From the RBI’s perspective, legitimising crypto would mean accepting responsibility for a market it believes it cannot fully control or protect.
For users, this lack of regulation means uncertainty, higher costs, and fewer safeguards.
As that uncertainty continues, users don’t wait for clarity. They adapt. Some move their money abroad. Others look for exposure through foreign stocks or platforms.
The RBI keeps crypto at arm’s length to limit risk. But that distance also means the activity doesn’t stop — it simply moves elsewhere.
For now, India’s crypto market keeps growing, just beyond the system meant to oversee it.
Outro: That's all for today. You just heard The Signal Brief. We don't do hot takes. Instead, we bring you deep dives into the how and why of consumer trends. The Core produces The Signal Brief. Follow us wherever you get your favourite podcasts.
To check out the rest of our work, go to www.thecore.in.
If you have feedback, we'd love to hear from you. Write to us at feedback@thecore.in or you can write to me personally at kudrat@thecore.in.
Thank you for listening.
