Indian government should regulate
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2 possibilities as follows
If Govt bans the Bitcoin or Crypto in any way then a black market(cash) will start in parallel and Govt/regulator will never track the transaction
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That's true.
If regulates then each transaction will be tracked properly from Exchanges that who is earning/investing in crypto. And if investor is earning profit he/she has to pay taxes as per regulation of short/long term investment return
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Since exchanges are not allowed to work in India, I don't agree with you on this one. Even if government issues some regulations regarding Bitcoin, it doesn't mean government can actually track all transactions done by traders. It can only give guidelines and it's up to traders whether they follow those or not. There will be very minute chances that government could actually catch the frauds in crytpo transactions.