5 Facts on India’s Crypto Hidden Practices: New FTX-style Threats to Watch Out For

akarta, Pintu News – India is back in the spotlight in the cryptocurrency world. This time it is not because of the growth in adoption or the launch of new coins, but rather because of a stern warning from its financial authorities against the hidden practices of crypto exchanges.

Based on an investigation by India’s Income Tax Department, it was found that some local platforms were using customer funds secretly for purposes that were not always known to investors.

1. Customer Tokens Reused Without Clear Authorization

According to a report from Bitcoin.com News, the Indian Tax Department revealed that many local exchanges utilize customer tokens for lending, staking, and providing liquidity.

This is done without explicit notification to investors. Often, users only have the right to sell their tokens, while control over the funds is entirely in the hands of the platform.

While this practice is technically allowed as it is stated in the terms and conditions, the reality is that many investors are unaware that their assets have been repurposed or commingled in a liquidity commingling.

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2. Rehypothecation Practices: A Mirror of the FTX Case?

Experts warn that this practice is very similar to the misuse of client funds that occurred in the FTX bankruptcy case, which resulted in billions of dollars in losses.

In the traditional financial system, rehypothecation occurs when a pledged asset is re-lent by the party holding it. In the crypto context, this becomes even riskier due to the lack of transparency and oversight.

Without a clear regulatory framework, misuse of investor assets can occur without strong legal consequences for the exchanges that do so.

3. Regulators Do Not Have Enough Legal Power

According to a statement from Indian law enforcement officials, until now there has been no explicit legal framework prohibiting crypto exchanges from utilizing customer funds like this.

This creates a supervisory vacuum, allowing exchanges to take advantage of investor funds without fear of sanctions.

In an interview with local media, legal experts mentioned that the Indian government is still in the process of drafting a Digital Assets Act that could clarify the restrictions on the use of client funds by crypto exchanges.

4. Risk for Retail Investors Increases

Retail investors are the most vulnerable in this situation. They tend not to carefully read the terms and conditions of service or understand the risks of storing assets on a centralized exchange.

As a result, many of them have no idea that their funds could be used for activities beyond their control. This exposes them not only to market risk, but also institutional risk.

According to a local survey, only 22% of crypto exchange users in India know about the potential rehypothecation or misuse of client funds.

5. Demand for Crypto Regulation Grows More Urgent

With these growing concerns, analysts feel that India needs to accelerate the development of clear and firm regulations on the cryptocurrency industry.

This is not only important to protect investors, but also to build a healthy, transparent, and sustainable crypto ecosystem.

One of the suggested solutions is the implementation of a self-audit system on crypto exchanges, as well as the obligation to provide regular reports on the use of client funds to the public.

Also Read: Check out 4 US Economic Data that Potentially Affect the Crypto Market This Week!

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Reference:

• Bitcoin.com News. India Flags Hidden Crypto Practices That Mirror Global Exchange Failures. Accessed September 3, 2025