ABSTRACT
The research paper examines the changing rules governing cryptocurrency in India, focusing on how current laws and the roles of different institutions interact. These institutions include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Prevention of Money Laundering Act (PMLA). As digital assets become more important, the Indian legal system is struggling with several issues, such as the lack of full laws, unclear definitions, and poor coordination between institutions.
A major topic discussed is how cryptocurrency is treated under Indian securities law.The main question is whether certain types of tokens can be classified as “securities” under Section 2(h) of the Securities Contracts (Regulation) Act, 1956. Since many crypto-assets have features similar to investment contracts, there is a possibility that they can fall under SEBI’s regulatory authority. At the same time, the RBI has raised concerns about how cryptocurrencies might affect monetary stability, seeing them as a risk to the national currency system.
In 2018, the RBI issued a directive limiting financial institutions from dealing with virtual currencies, but this was overturned by the Supreme Court in 2020. The court stressed the need for fair and balanced regulation instead of a complete ban. Cryptocurrencies have traits of securities, currencies, and commodities, which means their regulation depends heavily on the situation. If they are considered securities under SEBI’s rules, it could improve investor protection and market fairness. However, the main challenge for Indian regulators remains balancing innovation with the risks to the financial system, monetary stability, and antimoney laundering efforts.
Keywords:-Cryptocurrency Regulation in India, SEBI and Securities Classification, RBI and Monetary Stability, PMLA and Anti-Money Laundering.
2. Introduction
Cryptocurrency is one of the most debated and controversial topics in India today. However, the idea of using a virtual method for transactions, be it for financial or everyday activities, is no longer uncommon. Therefore, it can be said that the emergence of cryptocurrency is a result of technological advancement. In addition, the term “virtual currency” is widely used, and cryptocurrency is just a part of it. Virtual currency is like a broader category, and cryptocurrency is a subset of that. The Reserve Bank of India (RBI) defines virtual currency in Box 3.4 of its report. It states that virtual currency is a type of irregular digital money, created and controlled by its developers, and used by members of a particular virtual community.
There is no universal definition of cryptocurrency, though various attempts have been made to define it. According to Merriam-Webster, “Cryptocurrency is a form of currency that exists only in digital form and is not supported by any regulatory authority.” [1]
Cambridge Dictionary defines it as “Any currency in digital form which is not made by the government, but is produced by a public network that uses cryptography to facilitate payments.”3
The Financial Action Task Force (FATF) report titled “Virtual Currencies- Key Definitions and Potential AML/CFT Risks” defines cryptocurrency as “a math-based, decentralized, convertible virtual currency protected by cryptography, using public and private keys to transfer value from one person to another and signed cryptographically each time it is transferred”.[2]
The main argument from governments that oppose cryptocurrency is that it is not yet recognized as legal tender. Legal tender is defined under Section 26 of the RBI Act as “Every bank note shall be legal tender at any place in India in payment or on account for the amount expressed therein and shall be guaranteed by the Central Government.” It should be noted that no country has officially accepted virtual currency as legal tender so far.
In simple terms, cryptocurrency is a digital currency that individuals can hold in their digital wallets. It is essentially a digital representation of value that can be stored and transferred electronically. It is a cash system that operates on cryptographic proof instead of trust, allowing two willing parties to transact directly without the need for a trusted third party.[3]
The functioning of a cryptocurrency relies on a complex digital algorithm called “blockchain,” which is an online database that records all details, including transactions. Therefore, whenever a transaction or exchange of cryptocurrency takes place, the process is recorded in the blockchain database.[4]
Unlike traditional currencies, cryptocurrencies are not backed by any country or government, and therefore, are not considered legal tender in many places.
No official body issues cryptocurrency, and it is not supported by any collateral such as bullion. While traditional currencies can be stored both physically and digitally (like in online accounts or wallets), cryptocurrencies cannot be stored physically. Because of these differences, regulating cryptocurrency requires a different approach compared to traditional currencies.Despite these challenges, cryptocurrencies are widely traded globally due to their potential for high returns, leading to wealth generation for traders.
The trading of cryptocurrencies operates on the basic economic principles of supply and demand. The higher the demand, the higher the price, and vice versa. For instance, the price of Bitcoin, which was $0.08 in 2010, is now around $12,000 today. Because of this, traders view cryptocurrency as a viable investment opportunity that can significantly increase their money.[5]
As of 2025, cryptocurrencies remain largely unregulated. Cryptocurrencies like Bitcoin and Pi Coin are not recognized as legal tender. Individuals can legally buy, sell, and hold cryptocurrencies like Bitcoin and Ethereum. In 2018, the RBI banned banks in India from dealing with cryptocurrencies, but the Supreme Court overturned this rule in 2020. In 2022, the government introduced a 30% tax on income from crypto trading and a 1% TDS on transactions. The Crypto Bill 2021, titled “The Cryptocurrency and Regulation of Official Digital Currency Bill,” aimed to ban private cryptocurrencies while introducing a central bank digital currency (CBDC), but it was never passed, leaving regulatory clarity still pending.
The research aims to examine the legal and regulatory gaps in India’s current framework governing Virtual Digital Assets (VDAs), combining the concerns of legislative absence, definitional uncertainty, and the possibility of classifying certain categories of cryptoassets as ‘securities’ under the Securities Contracts (Regulation) Act, 1956.
It further seeks to analyse the legality, constitutionality, and enforcement impact of extending the Prevention of Money Laundering Act (PMLA) to Virtual Digital Asset Service Providers (VASPs), evaluating how this shift influences compliance, oversight, and the broader functioning of the crypto ecosystem.
Finally, the research aims to propose practical, balanced, and innovation-oriented reforms to establish a coherent regulatory model for VDAs that ensures investor protection, market integrity, and supports technological development in India.
The study follows a secondary doctrinal research methodology, relying exclusively on existing legal and policy material instead of primary fieldwork. It involves the examination and interpretation of statutory frameworks, government notifications, regulatory circulars, judicial decisions, and policy papers issued by institutions such as SEBI, RBI, and the Ministry of Finance. Supplementary sources—including academic literature, law firm analyses, committee reports, and credible journalistic publications—are used to understand the evolution, challenges, and regulatory gaps in India’s approach to VDAs. This method enables a systematic and critical evaluation of the current legal landscape and supports the development of informed recommendations for regulatory reform.
[1]Merriam-Webster, Cryptocurrency, Merriam-Webster.com Dictionary,
https://www.merriamwebster.com/dictionary/cryptocurrency (last visited Sept. 27, 2025). 3Cambridge Dictionary, Cryptocurrency, Cambridge English Dictionary, https://dictionary.cambridge.org/dictionary/english/cryptocurrency(last visited Sept. 27, 2025).
[2] Fin. Action Task Force (FATF), Virtual Currencies – Key Definitions and Potential AML/CFT Risks (June 2014), https://www.fatf-gafi.org/media/fatf/documents/reports/Virtual-currency-key-definitions-and-potentialamlcft-risks.pdf.
[3] Satoshi Nakamoto, ‘Bitcoin: A Peer-to-Peer Electronic Cash System’, available at: https://bitcoin.org/bitcoin.pdf, last accessed 27 September 2025.
[4]Euromoney, ‘What is blockchain?’, available at: www.euromoney.com/learning/blockchainexplained/what–isblockchain, last accessed 27 September 2025.
[5]Eric Ervin, The Case For Cryptocurrency: Why Even The Most Cynical Bitcoin Bear Should Consider
Investing And How To Get Started, Forbes, 7 May 2020, available at: www.forbes.com/sites/ericervin/2020/05/07/the–case–for–cryptocurrency–why–even–the–mostcynicalbitcoin–bear–should–consider–investing–and–how–to–get–started/#6d6bf9d03801,last accessed 27 September 2025.