India’s cryptocurrency market has been expanding at a rapid pace over the past few years, attracting millions of investors, particularly among the younger population. Yet alongside this growth, government agencies have identified a sharp escalation in suspicious and fraudulent activity within the sector, highlighting the challenges of regulating a largely decentralized and borderless asset class.

According to a government report seen by Hindustan Times, the number of suspicious transaction reports (STRs) related to cryptocurrencies in India has skyrocketed over the past three years. In the financial year 2023-24, just 1,343 such instances were reported. By the end of November 2025, within the first eight months of the current fiscal year, the number had already surged to 11,720, a nearly 773% increase. Notably, 82% of these cases involved Indians aged between 20 and 40, indicating the demographic that is both most active and most exposed to potential fraud in the digital assets space.

The explosive rise in suspicious activity comes despite the government’s persistent concerns about cryptocurrencies, which it views as prone to money laundering, terror financing, and tax evasion. By November 2025, India had 34 million virtual digital asset (VDA) users—industry parlance for cryptocurrencies and associated tokens—holding combined assets worth approximately ₹24,800 crore. Nearly 41% of these investors have traded or invested through offshore platforms, often outside the direct regulatory purview of Indian authorities.

Recognizing the risks, the Narendra Modi government, in March 2023, brought cryptocurrency exchanges, transfers, and related financial services under the purview of the Prevention of Money Laundering Act (PMLA). Under this framework, any VDA service provider operating in India, whether onshore or offshore, must register with the Financial Intelligence Unit (FIU), the nation’s primary financial intelligence agency. These service providers are legally obligated to file STRs whenever they detect activity that appears unusual, suspicious, or potentially criminal, irrespective of where the company is physically located.

Currently, 52 VDA service providers are registered with the FIU. They must flag transactions that may involve proceeds of crime, appear unusually complex or circular, lack clear economic justification, or arise from unverifiable sources of funds. Some common red flags include sudden activity in dormant accounts, repeated transactions deliberately kept just below reporting thresholds, circular trading designed to create artificial gains or losses, and transfers from untraceable sources.

Analysis of the reports filed between May 2023 and May 2025 revealed notable trends in cryptocurrency fraud in India. Tether (USDT), a stablecoin pegged to the U.S. dollar, emerged as the most frequently involved asset, appearing in 7,467 cases, or 76% of reports. Bitcoin accounted for approximately 6% of flagged transactions. Across the reports, fraudulent transactions accounted for 62% of suspicious activity, while unusually complex transactions made up 16%, and anomalous account behavior accounted for 10%.

Geographically, Rajasthan accounted for the highest share of suspicious reports at 18%, followed by Uttar Pradesh at 11%. Maharashtra and West Bengal each contributed 7%, and Madhya Pradesh 6%, reflecting the distribution of crypto activity across major urban and semi-urban centers in India.

To monitor and respond to these emerging risks, the Bhartruhari Mahtab-led Parliamentary Standing Committee on Finance has initiated a review of the cryptocurrency sector. Authorities have also imposed penalties totaling ₹29 crore and blocked 63 websites that failed to comply with registration or reporting requirements under Section 69A of the Information Technology Act, 2000.

One illustrative case flagged by the FIU demonstrates the growing international dimension of crypto-related cybercrime. Investigators identified 34 individuals using Indian cryptocurrency accounts while masking their locations through Cambodian internet addresses. These accounts were funded via Huione Pay, a Cambodian payment service. According to FIU investigators, these individuals funded their accounts with USDT, immediately converted the stablecoins into rupees, and withdrew the funds to Indian bank accounts. The pattern suggested the potential involvement of illicit funds, including proceeds linked to cybercrime and human trafficking.

Blockchain analytics tools, which track crypto transactions across distributed ledgers, revealed that several of these accounts shared the same device fingerprint, indicating the same phone or computer was used for multiple accounts. Attempts to contact these users via WhatsApp led to responses from 21 of them, who claimed to be employed in conventional occupations such as hotel and restaurant work, civil engineering, and supermarket operations. Yet their transaction volumes were disproportionately high for these professions, raising red flags for authorities. The U.S. government had previously sanctioned Huione Group and its subsidiaries, effectively cutting them off from the American financial system.

Beyond money laundering concerns, cryptocurrencies present a significant challenge to tax authorities in India. The nature of virtual assets—borderless, instant, and often pseudonymous—makes it difficult for tax authorities to identify the owners, track income, and recover dues. Offshore exchanges, private digital wallets controlled entirely by users, and decentralized platforms operate outside traditional banking channels, which typically report financial activity to tax authorities. Consequently, a substantial portion of cryptocurrency-related income remains outside India’s formal tax system, undermining both compliance and revenue collection.

The government’s concern extends to the technological sophistication of the sector. Fraudulent transactions often exploit the very design features that make cryptocurrencies attractive—anonymity, rapid transfers, and lack of intermediaries. As a result, authorities face the dual challenge of regulating a rapidly evolving asset class while attempting to detect complex and often cross-border criminal schemes.

Financial experts warn that the explosive growth of crypto fraud underscores the need for stricter enforcement, better investor education, and advanced monitoring tools. They point out that while stablecoins like USDT are marketed as low-risk assets due to their peg to the U.S. dollar, they remain vulnerable to manipulation and misuse in fraudulent schemes. In addition, the increasing use of offshore platforms complicates enforcement, as these entities may operate beyond the direct legal reach of Indian regulators, creating a persistent risk of unreported and suspicious activity.

Industry observers note that the surge in STR filings is partly due to the rapid scaling of India’s crypto ecosystem. With millions of new users entering the market each year, platforms are identifying unusual patterns more systematically. While some reports reflect genuine attempts to flag potential fraud proactively, the sheer volume of suspicious transactions highlights the scale of the problem and the need for continued vigilance.

Looking ahead, regulators are expected to intensify scrutiny of both domestic and foreign cryptocurrency exchanges. Policymakers are exploring additional measures, including tighter KYC norms, enhanced reporting standards, and more sophisticated blockchain monitoring capabilities. These steps aim to mitigate the risks of illicit activity while enabling legitimate growth of the digital asset sector.

In conclusion, India’s cryptocurrency landscape presents a paradox: on one hand, a rapidly growing market attracting millions of young investors; on the other, an alarming rise in suspicious and fraudulent transactions, particularly involving stablecoins like USDT and offshore platforms. The surge in STRs—from just over 1,300 in 2023-24 to more than 11,700 in the first eight months of 2025-26—reflects the scale of the challenge faced by regulators. Authorities are now grappling with cross-border transactions, potential links to cybercrime and human trafficking, and the broader difficulties of taxation and enforcement in a decentralized financial system. As India continues to embrace the digital economy, the need for robust oversight, international cooperation, and public awareness has never been more urgent.