India’s Crypto Market: A Balancing Act of Growth and Regulation
India’s cryptocurrency market is experiencing a rapid growth spurt, but the path ahead is paved with regulatory hurdles. The Financial Intelligence Unit (FIU) is currently reviewing registration applications from four international cryptocurrency exchanges, with two potentially receiving approval by the end of 2025.
These exchanges will undergo a thorough evaluation, with a particular focus on past non-compliance issues. The FIU emphasizes a strict adherence to compliance standards, stating that only after comprehensive due diligence will they allow any crypto exchange to operate in India.
A History of Regulatory Action
India’s regulatory landscape has undergone significant changes in recent years. In 2023, the Finance Ministry mandated all cryptocurrency exchanges to register as reporting companies with the FIU. This led to a crackdown on several prominent overseas exchanges, including Binance, KuCoin, Huobi, Kraken, Gate.io, and Bitfinex, for non-compliance with AML and registration requirements.
- Binance and KuCoin have since registered as reporting businesses and resumed operations in India. Binance cooperated in August 2024, while KuCoin returned in March 2024 after paying a penalty.
- Currently, 48 crypto entities are registered in India.
A Balancing Act: Growth and Regulation
Despite the regulatory scrutiny, India’s crypto market continues to grow. The country boasts over 20 million registered cryptocurrency investors, with a significant portion of this growth fueled by its young, tech-savvy population. In 2023, Chainalysis identified India as having the highest rate of cryptocurrency adoption globally.
However, the government remains cautious about the future of cryptocurrency in India. In September or October of this year, the government is expected to release a consultation document to determine whether to outlaw or permit cryptocurrency assets within the country. This decision will be influenced by the IMF-Financial Stability Board’s report outlining national principles for cryptocurrency regulation, which emphasizes investor safeguards and anti-money laundering procedures.
The government is also keenly aware of the risks associated with cryptocurrency, including cyberattacks. The $230 million cyberattack on WazirX in July 2024 highlights the vulnerability of the industry. This incident underscores the need for robust security measures and stringent regulation to protect investors and maintain financial stability.
Looking Forward
India’s cryptocurrency market is at a crossroads. While the regulatory environment is still evolving, it is clear that the government is committed to ensuring a responsible and secure ecosystem for both investors and the wider financial system. The outcome of the consultation document will be crucial in shaping the future of cryptocurrency in India, determining whether it will flourish as a significant part of the country’s financial landscape or face restrictions.
