Cryptocurrency Regulations And Their Effect On Investor Confidence In India

Abstract

India’s crypto policy has evolved from the RBI’s 2018 banking restrictions, to the Supreme Court’s 2020 quashing of that circular, to a tax-and-compliance regime since 2022–2025 (30% gains tax, 1% TDS, and AML obligations under PMLA for VDA service providers). This paper examines how these regulatory shifts shape investor confidence (IC) along three channels: (i) legal clarity, (ii) tax burden and liquidity frictions, and (iii) AML/KYC trust. Using a mixed-methods design event-study windows around key policy dates and a nationwide survey (N=1,036) that builds a four-factor Investor Confidence Index (transparency, safety, fairness, and participation intent) we find that clarity plus AML registration raises perceived safety and platform trust, but high effective tax + 1% TDS reduces trading activity and near-term participation intent, especially among high-frequency traders. Net effect on confidence is positive for long-horizon investors (due to legitimacy and safer market access) and negative for short-horizon speculators (due to liquidity drag). We conclude with policy options to preserve AML integrity while easing liquidity frictions that suppress market depth.