India Stalls Full Crypto Framework, Citing Systemic Risk Fears: Report

Core Viewpoint - India is opting for partial oversight of the crypto sector rather than a comprehensive law, due to concerns about systemic risks associated with integrating digital assets into the mainstream financial system [1][2][6] Regulatory Environment - The Reserve Bank of India (RBI) has expressed skepticism about effective regulation, suggesting that legitimizing cryptocurrencies could lead to wider adoption and systemic risks [2][6] - The government has implemented heavy taxation, including a 30% tax on profits and a 1% tax deducted at source on transactions, which has significantly reduced domestic trading volumes [3][4] - Global exchanges can operate in India if registered with the Financial Intelligence Unit, as demonstrated by Bybit's resumption of services after paying a penalty [3] Market Dynamics - Despite regulatory restrictions, crypto adoption in India remains strong, with an estimated $4.5 billion held in digital assets [4] - The current regulatory framework is designed to discourage speculative trading and penalize fraud, contributing to India's leading position in the global crypto adoption index [4][7] Concerns about Stablecoins - The government has raised concerns regarding stablecoins, noting their vulnerability to market shocks and potential to disrupt domestic payment systems, particularly the Unified Payments Interface (UPI) [5] - The growth of stablecoins, often pegged to the U.S. dollar, could pose challenges to global financial stability [5] Future Outlook - India is maintaining a cautious approach by tightening oversight without granting legal recognition to digital assets, which could make them systemic [6]