Stablecoins vs Bitcoin: Why RBI Is Raising Red Flags Now!

With the rise of digital assets, the Reserve Bank of India (RBI) has issued warnings regarding the risks posed by international Stablecoins. Global digital assets are predicted to reach $300 billion by the end of 2025. The RBI's warnings are almost reactive as it attempts to protect India from real risks to its financial ecosystem. The RBI Stablecoin warning, RBI Crypto Regulation India, Stablecoin Risk India, and Bitcoin vs Stablecoin Difference are the main areas this blog will cover. Gaining knowledge of this will be critical in 2026, as it will bring crypto regulation in India.

Stablecoins and Bitcoin: The Most Important Differences

There is no doubt why the RBI is concerned, and to understand why, we will start with the basics of Stablecoins vs Bitcoin. Although Bitcoin and Stablecoins are both cryptocurrencies, they are used for completely different reasons.

Bitcoin is also known as digital gold, because it is a cryptocurrency that was the first of its kind.

Created in 2009 by an unknown creator by the name of Satoshi Nakamoto, Bitcoin's crypto network is completely decentralised. Some of Bitcoin's attributes are that it has a highly volatile valuation, Bitcoin's supply is limited to 21 million coins, and the demand in the crypto market as well as the global economy. It is a good way to try to prevent inflation, but prices can easily go up or down by ten percent or more in 24 hours.

In contrast to Bitcoin, stablecoins are pegged to underlying assets, whether gold, currency, or a combination of both, through an algorithm. USDT (Tether) and USDC (Circle's USD Coin) are US Dollar stablecoins because they aim to be in a 1:1 ratio to the Dollar. Stablecoins are good to use for transactions, remittances, and connecting traditional finance to the crypto world. Because stablecoins are not volatile, they are a better and more stable choice for frequent transactions.

The primary difference in bitcoin vs stablecoinis in how volatile and stable each of the currencies is. Bitcoin's value goes up and down based on factors such as market speculation. A stablecoin's value does not fluctuate as often since the value of stablecoins is tied to the value of the US dollar. Though stablecoins are not 100% stable or safe, the stablecoin market does prioritise the reserves and the issuers. A good example is the de-pegging of TerraUSD in 2022.

In a country like India, which is prioritising digital payments and their inclusion, these factors are important in considering regulations. While stablecoins can lead to volatility in systems being integrated into the overall financial systems, this may limit the control of the country's money.

RBI's Warning About Stablecoins as a Timeline of Warnings

The RBI's Stablecoin Warning has been occurring for a while and has seen an increase in frequency in recent months. In December 2025, T. Rabi Sankar, Deputy Governor of the RBI, gave a keynote address in Mumbai, stating that stablecoins have little to no use and posing significant macroeconomic risks. In his view, stablecoins are a mechanism for economic crime and to circumvent capital controls, and have no usefulness beyond what cash can provide.

Then came the RBI’s December 2025 Financial Stability Report (FSR), which identified stablecoins as a “material source of systemic risk.” The report cautioned that the rapid expansion of stablecoins and their links to traditional finance may undermine the transmission of critical monetary policy, create new challenges for managers of a country’s borders in controlling and managing capital flows, and weaken the role of banks. As of January 2026, the RBI once again stated that for countries to uphold the integrity of their financial systems, they should be prioritising Central Bank Digital Currencies (CBDCs) over privately issued stablecoins.

What is the urgency? The rapid expansion of the global stablecoin market to $300 billion, with USD-pegged tokens being the most prevalent, has intensified concerns of “dollarisation” of the economies, particularly for India. As Sankar pointed out, stablecoins may lead to currency substitution, which would undermine the RBI’s control over the supply and demand of money as well as the control of bank interest rates. These concerns are consistent with the international community’s worries, such as those expressed in the Bank for International Settlements (BIS) 2025 report, which stated that stablecoins threaten monetary sovereignty.

RBI's Risks of Stablecoins Impacting India

In terms of stablecoin risks India, the RBI has mentioned the erosion of their monetary policy as one of the initial risks. A large number of users adopting foreign currency stablecoin options (mostly USD-pegged) means the demand for the Indian Rupee will fall. This will cause the Indian economy to partially dollarize, which will hinder the RBI's ability to control inflation, interest rates, and liquidity.

Second, stablecoins aggravate systemic financial risks. In times of market stress and liquidity, there can be gaps in the mismatched or forced selling of assets. This can magnify the existing vulnerabilities of the banking and payments systems. The RBI suggests stablecoins could create a bank run type of scenario where users rush to redeem their stablecoins and this will become a major financial stability concern.

Third, the RBI has mentioned that managing cross-border capital flows becomes difficult. Unregulated stablecoins can cross borders and bypass regulations, which can support illegal activities such as money laundering. This is concerning in India because capital controls are essential to the economy's stability.

Banking disintermediation is the last concern. The RBI is clear that stablecoins may be able to provide a lot of nations with a lot of efficiencies and improvements, but it is very clear in the fact that the risks outweigh the rewards in a sovereign context.

RBI's Situation With Crypto In India:  Cautious Regulation

RBI crypto regulation Indiahas a cautious “wait and see” methodology, pointing towards the regulation of the crypto space. While crypto is not illegal in the country, it is subject to heavy taxation and surveillance. As of 2022, Digital Virtual Assets (DVAs) such as Bitcoin and stablecoins have been taxed 30% on gains, with a 1% Tax Deducted at Source (TDS) on transactions above a certain threshold. DVAs are also registered under the Prevention of Money Laundering Act (PMLA) and, as such, exchanges that deal with them are required to register with the Financial Intelligence Unit (FIU) and conduct a full KYC (Know Your Customer)/AML (Anti Money Laundering) process.

As for the history of the RBI, a 2018 circular that was in place stated that banks would not be allowed to be involved with crypto for any reason. However, this was not the case from 2020 and on as the Supreme Court of India determined that the circular was unreasonable, as there was no real justification that was explained for this circular. Currently, there are no laws on stablecoins, and the RBI has no real view on them from a benefits perspective. However, the RBI does prefer the e-Rupee as a Central Bank Digital Currency (CBDC) over private options. 

There have been drafts of rupee derivatives and requests for the brokers to be limited, which have been on a downward trend in terms of financial freedom. This also affects crypto to a large extent.

India has the highest level of crypto adoption in the world, and the RBI has chosen the route of issuing a probable ban on decentralised cryptos to avoid any potential losses in central bank control over the economy. There are suggestions from some experts such as classifying different types of tokens or creating a regulatory sandbox, that might help, but unfortunately, the country is still waiting for some action.

Stablecoins vs Bitcoin: Implications for Indian Users and Economy

In the case of the RBI and Stablecoins vs Bitcoin, the RBI sees stablecoins as a more direct threat to the economy due to their direct fiat-pegging functionalities and a risk of ‘currency substitution’ as they could be seen as competitive to the Rupee. Bitcoin is seen as more of a speculative and less of a real investment, due to the real threat from its high volatility, and as a result, it does not pose a competitive threat to the Rupee.

In terms of investment, Bitcoin is seen as more of a risk, but offers a potential for greater return on investment. Stablecoins, on the other hand, allow the user the ability to participate in the real economy, such as through DeFi, and through the use of active money in the form of remittances, etc. Also, in India, the lack of trust in the digital payment systems, coupled with the risk of de-pegging of the stablecoins or the collapse of the stablecoin issuer, can lead to further erosion of trust in the digital payment systems. As such, the RBI sees the Central Bank Digital Currency (CBDC) as allowing the system to retain the benefits of the digital payment system without having to rely on the private issuers of stablecoins.

In India, the RBI sees Bitcoin as more of a peripheral issue, but with the increased potential of stablecoins to disrupt the system, the RBI sees the potential for reduced control of the flow of money in the economy and thus a greater potential of stablecoins to impact the economy.

Why Is the RBI Raising Red Flags Now?

The RBI stablecoin warning is a direct result of the explosive growth in the stablecoin sector. The stablecoin market cap is forecast to grow to $300 billion in 2025, with an increasing integration with the traditional finance system. The contrast between the RBI caution in India and the evolving global situation, such as U.S. Regulations (the GENIUS Act for example), is leading the RBI to explain itself by saying that USD dominance provides U.S. leniency, while in India and other emerging markets, there are more direct threats to a nation’s economic control.

Conclusion

With the pandemic behind us, rapid digital adoption and increased participation in cryptocurrency in India have heightened risks. The RBI's FSR and recent speeches reflect an early response to stave off “financial chaos.” As an X post and comments note, this may result in more stringent on-ramps or stablecoin bans.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.

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