The Reserve Bank of India (RBI) has reiterated its firm stance against the legalization of cryptocurrencies, warning that virtual digital assets (VDAs) like Bitcoin pose significant threats to the country’s financial system. The central bank emphasized that these assets operate outside traditional banking frameworks, making them difficult to regulate and increasing the risk of financial instability.
Addressing the Parliamentary Standing Committee on Finance, the RBI highlighted challenges stemming from the global nature of crypto platforms, many of which are headquartered outside India’s jurisdiction. This lack of domestic oversight facilitates illegal activities such as money laundering, narcotics trafficking, and terrorism financing. The RBI cited the approach of other regions, noting that European countries permit digital assets only under stringent regulations, while nations like China and Qatar have enforced outright bans on crypto-related operations.
Contrasting with the RBI’s cautious view, the Institute of Chartered Accountants of India (ICAI) advocates for the establishment of a comprehensive legal framework to regulate VDAs rather than prohibition. The ICAI offered its expertise to develop accounting standards and compliance protocols tailored to cryptocurrencies, aiming to enhance transparency and regulatory control. Their proposal includes conducting detailed research on digital assets’ economic features and creating guidance for their recognition, measurement, and disclosure in financial statements.
Meanwhile, India’s government continues to treat cryptocurrencies as taxable assets without granting them formal legal status. The Union Budget 2026 tightened compliance measures by proposing fines for entities failing to report crypto transactions to tax authorities, reflecting a move towards increased oversight without legalization.
The RBI’s warnings come amid a notable decline in retail cryptocurrency trading in India, with Q1 2026 volumes falling compared to the same period the previous year. Despite this slowdown, data from TRM Labs revealed an unprecedented rise in security breaches within the crypto sector worldwide during the first half of 2026, with incidents reaching a record high. Although total losses from these attacks decreased significantly, the frequency and sophistication of the threats increased.
Ari Redbord, Global Head of Policy at TRM Labs, emphasized that the crypto threat landscape remains highly dangerous and evolving, underscoring the complexity regulators and market participants face in managing risks associated with VDAs.