The Bitcoin Beacon
The largest grassroots bitcoin economy on earth is governed by a state that would rather it did not exist.
Nearly 39 million Indians hold roughly $2.1 billion in bitcoin and other digital assets, and by Chainalysis’s count India ranks first in the world for grassroots adoption. None of that has moved the country’s central bank. In documents reviewed by Reuters and reported on July 8, the Reserve Bank of India told the government its preferred policy still “leans toward prohibition.”
That is the paradox of bitcoin in India: enormous from below, unwanted from above. The technology spread through tier-two and tier-three cities on cheap smartphones and peer-to-peer apps, largely without the banking system’s help. The state’s instinct, a decade on, is to wall it off rather than route it in.
The central bank’s objections are macro, not moral. It has long argued that banks should hold no exposure to bitcoin or to privately issued stablecoins, warning of contagion into the wider financial system. It is hostile even to rupee-pegged tokens, on the grounds they would erode seigniorage — the profit a state earns from issuing its own money — and create stress points in a crisis.
The deeper fear is capital flight. India runs persistent current-account deficits and imports most of its energy. When tensions with Iran pushed oil higher this year, the rupee slid to record lows and the import bill swelled. Officials worry that mass bitcoin adoption gives savers a frictionless exit from the rupee, bypassing the banks and widening the external deficit at exactly the wrong moment.
Enormous from below, unwanted from above.
Indians have been trading in a legal limbo since 2020, when the Supreme Court struck down an earlier RBI order barring banks from serving crypto firms. Bitcoin is neither clearly illegal nor clearly regulated. A 2021 draft bill to ban private cryptocurrencies was written but never introduced; the policy conversation has been postponed, repeatedly, ever since.
What the government did build instead was a tax wall. Gains are taxed at a flat 30%, a separate 1% levy is withheld on each trade, and losses cannot be offset. The tax department’s complaint is that even this is widely dodged: in the financial year ending March 2023, fewer than a quarter of the roughly 645,000 people who transacted in crypto declared the gains. Trades on offshore and peer-to-peer platforms, especially rupee-denominated ones, are hard to trace and harder to tax.
Against that backdrop, a parliamentary committee is now weighing India’s direction. It heard the RBI at the start of July and is scheduled to hear the Department of Economic Affairs around July 15 before finalizing a report, during the monsoon session, on whether the country follows the central bank’s isolation or adopts an EU-style framework of licensing and oversight.
Some political voices want more. Pradeep Bhandari, a spokesperson for the ruling BJP, has urged policymakers to consider even a small-scale bitcoin reserve pilot, arguing it would strengthen India’s economic resilience and keep it aligned with a global trend toward sovereign holdings. That idea has energy in op-eds and none, so far, in the institutions that would have to execute it.
India is the test case for a question every large emerging economy will eventually face: what do you do when your citizens adopt a monetary technology faster than your state can decide how to feel about it? Prohibition does not remove the 39 million holders; it pushes them offshore, out of view of the very tax net the RBI says it is protecting.
The committee’s report will not settle the argument, but it will show which fear wins — the central bank’s dread of leakage, or the growing worry that a country writing off the world’s biggest grassroots bitcoin market is writing off a market that will exist with or without its blessing.
India has more grassroots bitcoin users than any country on earth and a central bank that wants them gone. A parliamentary report due this session will choose between prohibition and licensing — but the 39 million holders are already a fact on the ground, and a ban only decides whether the state can see them.
Editor’s note: holder and value figures (39M / ~$2.1bn as of May) and the FY2022–23 tax-compliance statistic come from government documents cited by Reuters and CoinDesk. The July 15 hearing date and monsoon-session report timing are as reported in early July and may shift. Bitcoin-specific framing applied throughout; the RBI’s stance covers digital assets broadly.
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