International Journal For Multidisciplinary Research

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Regulation of Cryptocurrency by Indian Law and Agencies

Author(s) Aryan Khandeparkar
Country India
Abstract This research paper explores the evolving landscape of cryptocurrency regulation in India, analysing the roles and limitations of existing regulatory frameworks under 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 gain prominence, the Indian legal ecosystem struggles to keep pace due to a lack of comprehensive legislation, institutional clarity, and definitional coherence. The study begins by examining the classification dilemma surrounding crypto-assets under Indian securities law, particularly whether certain tokens could fall within the ambit of "securities" under Section 2(h) of the Securities Contracts (Regulation) Act, 1956. By comparing characteristics of cryptocurrencies to conventional financial instruments and referencing international legal benchmarks such as the Howey Test, the paper argues that many tokens exhibit sufficient investment features to warrant regulatory scrutiny by SEBI.
In parallel, the RBI's approach, rooted in concerns over monetary stability, has largely treated cryptocurrencies as a threat to sovereign currency systems. Although the 2018 RBI circular attempted to isolate the financial system from crypto-related activities, the Supreme Court overturned the ban in 2020, underscoring the need for proportional regulation rather than prohibition. Meanwhile, the Indian government has taken significant steps under the PMLA by designating crypto intermediaries as "reporting entities," thereby mandating KYC, transaction monitoring, and suspicious activity reporting to the Financial Intelligence Unit-India (FIU-IND). While these moves align with global anti-money laundering standards, the application of PMLA to a fast-evolving digital sector presents both legal and practical challenges.

A key argument advanced in this paper is the need for a dedicated regulatory authority—tentatively called the Digital Asset Regulatory Authority of India (DARA)—to oversee the crypto ecosystem holistically. The study highlights how SEBI and the Enforcement Directorate (ED) are already overburdened with their existing mandates, leading to delays, inefficiencies, and enforcement gaps. A specialised regulator could centralise policymaking, enforcement, and innovation facilitation, thereby addressing jurisdictional ambiguity and improving investor protection without stifling technological growth. this research concludes that the future of digital assets in India demands a balanced, innovation-friendly regulatory framework.
For this, a pragmatic regulatory approach—combining institutional reform, international cooperation, and respect for crypto’s foundational features such as decentralisation and pseudonymity
Field Sociology > Administration / Law / Management
Published In Volume 7, Issue 3, May-June 2025
Published On 2025-06-01
DOI https://doi.org/10.36948/ijfmr.2025.v07i03.46742
Short DOI https://doi.org/g9m2dm
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