Manish Tewari | Digital Rupee Not Enough, Need A New Crypto Policy

The emergence of virtual digital assets (VDAs), commonly referred to as cryptocurrencies or crypto-assets, represents one of the most significant financial and technological innovations of the 21st century.

Born out of a decades-long quest for a decentralised, anonymous and state-independent medium of exchange, these assets challenge the very foundations of traditional monetary systems.

The genesis of this movement can be traced back to the cypherpunk ethos and the Crypto Anarchist Manifesto of 1988 by Timothy May, which envisioned a world where cryptographic tools enable private, anonymous transactions free from governmental oversight.

This vision materialised with the release of the Bitcoin whitepaper in 2008 by the pseudonymous Satoshi Nakamoto, which proposed a peer-to-peer electronic cash system operating without trusted intermediaries like banks. The fundamental idea was to disrupt the sovereign monopoly over currency issuance, a radical proposition that continues to reverberate across global financial systems today.

The taxonomy of crypto assets has evolved far beyond the original concept of a purely peer-to-peer electronic cash system. The landscape now encompasses a vast spectrum of instruments, including utility tokens that provide access to a specific protocol or service, security tokens that represent digitised financial assets like stocks or bonds, stablecoins pegged to the value of fiat currencies, and non-fungible tokens (NFTs) representing unique digital ownership.

At its core, the question of whether VDAs constitute money hinges on the classic triad of monetary functions: a unit of account, a store of value and a medium of exchange.

While certain crypto-assets, particularly stablecoins, aspire to fulfil these roles, the majority (such as Bitcoin and Ether) exhibit extreme volatility, rendering them unreliable as stable stores of value or widespread mediums of exchange. Stablecoins like the US dollar, attempt to address this volatility by maintaining a stable value, thereby positioning themselves as viable mediums of exchange.

However, as noted by the Bank for International Settlements (BIS) in its 2025 Annual Economic Report, stablecoins fail the triple test of singleness, elasticity and integrity — the key attributes of sound money. The singleness of money, a cornerstone of modern monetary systems, ensures that all forms of currency are interchangeable at par value. The introduction of privately issued stablecoins fragments this singleness, creating multiple currency-like instruments whose values depend on the credibility and reserve adequacy of their issuers.

Nevertheless, the crypto ecosystem has evolved into a sprawling, privately-driven market, comprising unbacked crypto assets like Bitcoin and Ether, stablecoins such as USDT and USDC, and NFTs. According to the IMF’s Crypto Asset Monitor, the global market capitalization of crypto assets stood at approximately $3.9 trillion in mid-2025, with stablecoins accounting for about $255 billion.

The growth of stable coins has been particularly pronounced in emerging markets and developing economies (EMDEs), where they pose significant risks of currency substitution, or “cryptoisation”, a phenomenon where foreign-denominated stablecoins replace domestic currency, eroding monetary sovereignty and complicating capital flow management.

By 2025, India’s cryptocurrency sector is expected to achieve an impressive $6.4 billion in revenue, with around 107.3 million users. This growth is driven by the increasing push for financial inclusion and the rising appetite for alternative financial services complementing traditional banking.

It is against this backdrop of undeniable global momentum and technological promise that the Government of India’s current regulatory approach appears profoundly misguided and economically myopic. The decision to impose a 30 per cent tax on income from VDAs with no provision for offsetting losses and a one per cent TDS on every transaction is not a regulation but a deliberate stifling mechanism.

By treating VDAs primarily as a source of revenue and a risk to be mitigated, rather than as an innovation to be harnessed, India risks repeating the mistakes of the dot-com era, when excessive caution and regulatory inertia caused the country to miss out on a transformative economic opportunity.

The exodus of Indian crypto talent to more crypto-friendly jurisdictions like Dubai, Singapore, and Hong Kong is already underway. Blockchain entrepreneurs and developers are relocating to countries that offer clearer regulations, lower taxes and a more supportive ecosystem.

The Silicon Valley of the 1990s flourished because of its openness to innovation and risk-taking. Similarly, the crypto revolution demands a forward-looking policy approach that balances risk management with innovation promotion. India’s current stance is driven by fears of systemic risks, including monetary policy disruption, banking disintermediation and capital flow circumvention. While these concerns are valid, they cannot be addressed through regulatory avoidance or punitive taxation.

The global regulatory landscape is evolving rapidly. Jurisdictions like the United States, with the enactment of the GENIUS Act, are moving toward legitimising stablecoins and integrating them into the formal financial system.

The European Union’s Markets in Crypto-Assets Regulation (MiCA) provides a comprehensive framework for crypto-asset service providers, emphasising transparency, consumer protection and financial stability. Even countries like Japan and Australia have established licensing regimes and regulatory safeguards.

India, by contrast, has resisted a full crypto framework citing concerns over macroeconomic stability. This reluctance is shortsighted. The borderless nature of crypto assets means that uncoordinated or fragmented national regulations will inevitably lead to regulatory arbitrage, where businesses and users migrate to jurisdictions with clearer rules.

The government’s emphasis on developing a central bank digital currency (CBDC) as an alternative to private crypto assets is commendable but insufficient.

While CBDCs offer the benefits of digital currency without the risks of decentralisation, they cannot substitute for the innovation and efficiency gains offered by blockchain technology and crypto assets. The two can coexist within a well-regulated ecosystem.

India’s regulatory approach must, therefore, evolve from one of scepticism and restraint to one of engagement and enablement. This does not mean abdicating responsibility or ignoring risks. Rather, it means creating a framework that addresses consumer protection, financial integrity, and systemic stability without stifling innovation.

The narrative that crypto assets are solely speculative instruments with no fundamental value is reductive and outdated. India, with its vast pool of tech talent and entrepreneurial spirit, is well-positioned to lead this transformation, By clinging to a risk-averse mindset, India is not only ceding economic opportunities to other countries but also undermining its own long-term interests. The stakes are high, and the window of opportunity is closing. India must act now, or risk being left behind once again.