India Building the Market Structure for the Next Phase of Crypto By Edul Patel, CEO, Mudrex

India’s crypto ecosystem has come a long way in a relatively short period. When the Financial Intelligence Unit (FIU) introduced its first set of guidelines for Virtual Digital Asset Service Providers (VDASPs) in 2023, the industry was still finding its regulatory footing. Platforms were adapting to compliance requirements, investors were learning to operate within a more formal framework, and policymakers were testing what responsible crypto oversight should look like.

Fast forward to today, and the picture looks very different. India has consistently ranked among the top countries for crypto adoption for three consecutive years. Millions of users actively engage with digital assets, and crypto is part of mainstream financial conversations. With this growth, the bar for the industry in terms of compliance needs to rise, and that is exactly what the FIU has done with its updated guidelines for Anti-money laundering (AML) and Countering Financing of Terrorism (CFT)

Why stronger oversight was inevitable

In any financial market, rapid adoption always brings both opportunity and risk. While India’s crypto growth story is encouraging, it has also attracted unregulated players, opaque practices, and bad actors looking to exploit regulatory gaps. These uninvited participants misuse platforms and harm not just individual investors but also the credibility of the entire ecosystem.

The updated FIU guidelines aim to address this head-on. By tightening AML and CFT norms, regulators are focusing on traceability, accountability, and robust reporting mechanisms. This ensures that innovation happens within a structure that protects users and aligns with broader financial safeguards.

As the industry matures, it must be held to standards similar to other financial services. Expecting lighter rules simply because the asset class is new is neither realistic nor sustainable. These updated norms reflect the industry’s transition from an experimental phase to a more institutional and long-term one.

Impact on crypto exchanges

From an exchange standpoint, there is no denying that these changes increase the compliance burden. Enhanced customer due diligence, stricter monitoring of transactions, and more frequent reporting would consume operational bandwidth. For platforms, this means investing in compliance teams, advanced monitoring tools, and stronger governance frameworks. However, most Indian exchanges have already been practicing what these guidelines have now put on paper, ensuring a high standard of compliance.

Strong compliance builds trust among both users and regulators. Exchanges that proactively align with these guidelines signal that they are here for the long term, committed to transparency and responsible operations.

More importantly, these rules help draw a clear line between regulated platforms and fly-by-night operators. Exchanges that cannot or will not meet these standards will gradually be pushed out of the market. This will strengthen the ecosystem overall by ensuring that only credible, accountable players serve Indian investors.

What it means for investors

For investors, the updated guidelines are a positive development. While stricter KYC, transaction monitoring, and reporting mechanisms could create more friction for users, they significantly reduce the risk of fraud, money laundering, and other financial crimes. This creates a safer environment, especially for first-time and retail investors who may not always have the tools to identify risky platforms or schemes.

Investor protection is not just about preventing losses; it is also about confidence. When users know that platforms operate under clear rules and oversight, they are more likely to participate responsibly and for the long term. This trust is essential for deeper adoption, higher-quality participation, and the gradual integration of crypto into broader financial planning.

At the same time, investors must also rise to the occasion. Increased compliance may mean more documentation, clearer source-of-funds disclosures, and stricter account monitoring. While this can feel inconvenient, it is part of participating in a maturing financial system. The trade-off is a more secure and transparent market.

Eliminating unregulated players

One of the most important outcomes of the updated FIU guidelines is their ability to eliminate unregulated and non-compliant players. In the past, regulatory ambiguity allowed certain platforms to operate without sufficient checks, exposing users to significant risks. That window is now closing.

As enforcement becomes stricter, only platforms that prioritize compliance, user protection, and transparency will survive. This consolidation is healthy. It reduces systemic risk, improves overall market quality, and aligns India’s crypto ecosystem more closely with global best practices. For genuine businesses, this creates a level playing field. For bad actors, it raises the cost of operating to a point where shortcuts are no longer viable.

Raising the bar as we grow

The updated FIU guidelines mark an important milestone in India’s crypto journey. They acknowledge that the industry’s growth demands strong safeguards. More importantly, they set the foundation for the next phase of growth that is sustainable, trusted, and globally credible.

Compliance costs will rise, and processes will become more rigorous. But these are signs of progress. Markets that endure are built on trust, accountability, and transparency. By raising the bar today, India is ensuring that its crypto ecosystem is prepared for deeper adoption, institutional participation, and long-term relevance.

As an industry, the responsibility now lies with all stakeholders, including exchanges, investors, and service providers, to embrace this shift. Regulation and innovation do not have to be at odds. When done right, strong oversight can be the very foundation on which the next chapter of crypto growth is built.