After calls for an investigation into their use, ministers have now warmed to the prospect of digital assets having future use cases for India and its massive 1.3 billion population.
The country had been on course to completely ban cryptocurrency, with calls from the authorities to make ownership and trading of bitcoin illegal.
It is understood some ministers even wanted to go as far as jailing serial offenders.
With around 2.5 million users of bitcoin alone, the task facing any attempted clampdown looked impossible.
So a government taskforce was established in New Delhi to report back on the direction any potential legislation should take.
A top government advisor said: “But they have essentially fuelled a complete turnaround in official thinking.
“Recognising the enormous magnitude of coming down hard on cryptocurrency across all 29 states, the research has now forced the hand of the government to align itself with India’s obvious talent in digital technology.”
The result of the report – which is to be submitted by the end of February – is expected to pave the way for widespread regulation of cryptocurrencies and their use throughout India, but also signals an acceptance from New Delhi that bitcoin has a huge future in the country.
The adviser said: “This isn’t just about one of the world’s largest populations being given approval to forge ahead with embracing things like bitcoin.
“This will also have far-reaching effects throughout the world because there are exchanges, wallets and providers across the globe with huge customer bases in India where, up until now, the people thought it was going to be made illegal.
“It’s now going to be the opposite situation which can only see those customer bases grow exponentially.”