India’s Supreme Court Presses Government on Bitcoin: What Regulatory Uncertainty Means for the Future of Crypto

India’s Supreme Court Presses Government on Bitcoin: What Regulatory Uncertainty Means for the Future of Crypto

In a landmark moment for India’s digital finance space, the Supreme Court has ramped up pressure on the central government to clarify its stance on cryptocurrency regulation. During a recent bail hearing related to alleged Bitcoin fraud, the Court described crypto trading in India as operating in a “legal vacuum,” with Justice Surya Kant remarking, “Trading in Bitcoin is an illicit trade more or less like a Hawala business.”

But perhaps the most striking observation came when Justice Kant pointed out the contradiction in the government’s approach. “If you can tax it at 30%, also please regulate it as you have recognised it by taxing it,” he said, questioning why the state continues to profit from crypto gains without establishing a formal legal structure.

This isn’t the first time the judiciary has stepped in. In 2020, the Supreme Court famously overturned the Reserve Bank of India’s (RBI) 2018 circular that prohibited banking access to crypto exchanges, citing it as unconstitutional. Despite that ruling, progress has been limited. While the government introduced a steep 30% tax on crypto income and a 1% TDS (Tax Deducted at Source) on transactions, it has avoided passing a clear regulatory bill or policy.

And in a surprising turn, the Supreme Court in April 2025 refused to entertain a public interest litigation demanding formal cryptocurrency regulations, stating it was a matter for Parliament and the executive branch to address. This reinforced the separation of powers but left stakeholders with the same lingering ambiguity.

The Impact of Regulatory Ambiguity

India’s crypto ecosystem is not only large but deeply active, with millions of users and a robust developer community. Yet, the absence of regulation has created a high-risk environment with several repercussions:

1. Investor Vulnerability

Without legal recognition or protection, investors have little recourse in the event of scams or exchange collapses. Fraudulent projects and rug pulls thrive in such a grey zone, and even legitimate investors find themselves trapped between unclear tax rules and informal compliance requirements.

2. Institutional Hesitation

Major institutional players and venture capital funds are reluctant to invest in Indian crypto startups due to the legal unpredictability. This creates a capital bottleneck that discourages innovation and slows the development of local Web3 infrastructure.

3. Brain Drain and Offshore Shift

Startups and developers increasingly incorporate in crypto-friendly jurisdictions like Singapore, Dubai, or Estonia to avoid compliance uncertainty in India. Many Indian-led blockchain projects are headquartered abroad, weakening India’s hold over intellectual property and job creation.

4. Parallel Ecosystems

As the formal sector hesitates, a parallel market driven by informal peer-to-peer transactions continues to grow, heightening systemic risks. These unmonitored activities can potentially be exploited for money laundering or illicit trade.

How Stakeholders Can Prepare for What’s to Come

Despite the lack of policy clarity, this is not a time to be passive. Crypto participants—whether newcomers, long-term investors, developers, or businesses—must treat this period as one of strategic preparation. Here’s how:

1. Build a Culture of Voluntary Compliance

While India lacks a comprehensive law, existing financial laws related to AML (Anti-Money Laundering), KYC (Know Your Customer), and FEMA (Foreign Exchange Management Act) still apply indirectly. Exchanges and wallets should proactively implement rigorous compliance standards, even beyond what’s currently required.

2. Track Global Precedents

Stay updated on regulatory models from the EU (MiCA), Singapore (PSA), and the U.S. These frameworks can offer a blueprint for where Indian policy might eventually go. For example, the EU’s MiCA offers clear classifications of digital assets and licensing rules, while Singapore’s approach balances innovation with consumer protection.

3. Diversify Operational Jurisdictions

Startups, especially those raising capital or offering cross-border services, should consider hybrid structures. This means maintaining operations in India while registering entities in compliant jurisdictions to mitigate regulatory risk.

4. Participate in Policy Dialogue

Groups like the Bharat Web3 Association and other fintech collectives are preparing whitepapers and participating in public forums. Industry professionals should contribute to these efforts, ensuring that future laws are not only protective but also innovation-friendly.

5. Educate Users and Clients

Crypto businesses must shift from aggressive marketing to user education. Transparency in risk, taxation, custody, and withdrawal rules will build trust—especially important in an environment where the legal landscape is in flux.

What to Expect Next: A Crucial Turning Point

With the RBI’s new Framework for Formulation of Regulations introduced in May 2025, and increasing judicial scrutiny, the conversation around crypto is intensifying. Although the Supreme Court has deferred lawmaking responsibilities to the legislature, its remarks indicate that continued inaction is no longer acceptable.

India now finds itself at a regulatory crossroads:

• It can lead the global South in digital finance by designing progressive, transparent, and innovation-aligned crypto laws.

• Or it can continue delaying, leaving entrepreneurs in limbo and pushing the next generation of Web3 companies offshore.

Conclusion: A Sector Waiting to Be Seen

The Supreme Court’s bold statements signal not just concern—but opportunity. The fact that the judiciary is pushing for accountability reflects growing institutional recognition of crypto’s mainstream presence.

Now it’s up to India’s lawmakers and regulators to match that urgency. For those in the space, the message is clear: stay compliant, stay engaged, and stay ready. When the regulatory curtain finally lifts, those who’ve built ethically and responsibly will be in the best position to lead.

India’s crypto future is still unwritten—but the time to shape it is now.

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