This paper examines how artificial intelligence is reshaping cryptocurrency-enabled cybercrime and why Indian regulatory architecture still struggles to trace, freeze, and prosecute virtual digital asset flows at speed. It maps the modern crime stack, from AI-assisted phishing and social engineering to ransomware, pig butchering, mixer use, and cross-chain laundering. It then evaluates India’s compliance perimeter under the PMLA notification covering VDA service activities, FIU-IND reporting obligations, CERT-In incident directions, and the evidentiary demands for electronic records under the Bharatiya Sakshya Adhiniyam, 2023 and procedural safeguards under the Bharatiya Nagarik Suraksha Sanhita, 2023. The analysis identifies persistent gaps: inconsistent Travel Rule implementation, weak governance for unhosted wallets and DeFi control points, uneven forensic readiness across platforms, and cross-border delays that allow rapid dissipation of value. The paper argues for traceability as infrastructure, not paperwork, and proposes a reform roadmap that combines minimum technical standards for logs and attribution artefacts, risk-tiered controls for high-risk transfers, stronger supervisory testing, and faster international cooperation mechanisms. The goal is a rights-respecting model that improves recovery for victims while preserving due process and data protection. It also situates these reforms within FATF standards and comparative models to ensure interoperability, predictability, and resilient prosecutions across jurisdictions globally.