A Bill to prohibit all private cryptocurrencies in India, with some exceptions, is anticipated to be put up for final discussion and passage during the winter session of Parliament, which begins on November 29. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is one of 26 new Bills on the government’s legislative agenda, out of a total of 29 Bills. The government’s objective is, “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.“

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The Bill also attempts to ban all private cryptocurrencies in India; however, it provides for specific exceptions in order to encourage cryptocurrency’s underlying technology and applications.

According to broker discovery and comparison platform BrokerChooser, India now has over 10 crore cryptocurrency investors who have together invested in over $10 billion dollars. The value of a number of cryptocurrencies, particularly Bitcoin, has risen dramatically. At the moment, the value of one Bitcoin is Rs 42.62 lakh. It is vital to remember, however, that India currently lacks a cryptocurrency regulatory framework. However, there is nothing in the law that specifies trading in the same is unlawful.

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If the new Bill declares cryptocurrencies to be illegal tender, investors will be unable to trade in any crypto class.

Any prohibition on cryptocurrency trading or ownership would be a significant setback to India’s startup sector, which has just blossomed.

When China’s top regulators outlawed cryptocurrency trading, coin values plummeted, wiping off at least $400 billion from the industry. This is due to the fact that China has one of the largest cryptocurrency marketplaces.

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However, India’s trade market share is substantially lower than China’s. Many analysts feel that the crackdown will have little effect on cryptocurrency pricing as long as global corporations continue to use crypto-related products and services.

Any restriction imposed by the Indian government will have an impact on cryptocurrency exchanges and platforms headquartered in India. The values of the coins, on the other hand, would not change.

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When a ban is imposed, all transactions between the bank and your cryptocurrency exchanges are halted. Users will be unable to change their native currency into cryptocurrency or liquidate their existing investment.

According to Professor Padmanabha Ramanujam, Dean of IFIM Law School and a cryptocurrency expert, investors would still be able to find purchasers in jurisdictions where cryptocurrency is still legal. “…although leverage is still conceivable, the transaction costs of selling cryptocurrencies in such a situation would be much higher.”

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“In the case of a blanket ban, there will be a time period given to all investors to withdraw the funds. During this period, investors would be able to sell off their holdings as usual,” said Edul Patel, CEO, and co-founder of Mudrex, a global crypto investment platform

Since 2017, the RBI has expressed its concerns regarding cryptocurrency. In July 2017, then-RBI governor Urjit Patel told a parliamentary panel that the Reserve Bank of India (RBI) was keeping a careful eye on cryptocurrency transactions.

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Members of the panel, notably Bharatiya Janata Party MP Nishikant Dubey and BJD’s Bhartrihari Mahtab, have expressed worry over the surge in the use of virtual currencies, citing the difficulty in determining the source of money. Patel informed the members that the RBI has constituted an inter-disciplinary committee to investigate the legality of cryptocurrencies.

The RBI issued a circular on April 6, 2018, prohibiting banks and companies regulated by it from offering virtual currency services. The Supreme Court, however, overturned the circular on March 4, 2021.

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RBI Governor Shaktikanta Das has acknowledged that the RBI has serious concerns about cryptocurrencies, which have been communicated to the government over time.

Just before the Budget, the government announced a list of bills for the session in January this year, including one dubbed ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.’

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The mandate of the bill was said to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India”.

The Bill was then primarily based on the recommendations of the SC Garg Committee, which was constituted by the Ministry of Finance’s Department of Economic Affairs. The committee even advocated banning cryptocurrencies in its report titled “Report of the Committee to Propose Specific Actions to be Taken in Relation to Virtual Currencies.”

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The committee expressed worry about the proliferation of cryptocurrencies, nearly invariably issued abroad, and a large number of Indians investing in these cryptocurrencies. The report categorically said, “All these cryptocurrencies have been created by non-sovereigns and are, in this sense, entirely private enterprises. There is no underlying intrinsic value of these private cryptocurrencies, due to which they lack all the attributes of a currency.”

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The report also said that these private cryptocurrencies have no set nominal value, implying that they are neither a store of wealth nor a means of trade. Cryptocurrencies have seen dramatic price volatility since their beginnings.

Following the Garg Committee’s report, there was a sense in the market that the future of cryptocurrencies was sealed, as it stated that private cryptocurrencies should not be permitted because they cannot serve the purpose of a currency because private cryptocurrencies are inconsistent with the essential functions of money/currency. As a result, private cryptocurrencies cannot be used to replace fiat currencies.

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The committee also recommended that the government keep an open mind when it comes to an official digital currency. It advocated that the Department of Economic Affairs form a panel including members from the RBI, MeitY, and DFS to examine and develop an acceptable model of digital currency in India.

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If the official digital currency is to be designated as legal tender, the committee suggested that the Reserve Bank of India be designated as the competent regulator of such digital currency under Section 22 of the RBI Act.