The Ethereum cryptocurrency in an illustration. Photo: AFP / Jakub Porzycki / NurPhoto

Cryptocurrencies plunged sharply in India after reports emerged that the federal government may bring in a law to impose curbs on private players.

The government has listed a bill for the upcoming winter session of Parliament, starting November 29, seeking to ban all private cryptocurrencies.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, seeks to “prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” according to the list of business for the Parliament.

Through the cryptocurrency legislation, a facilitative framework will be created for an official digital currency that will be issued by the Reserve Bank of India.

After this news came out, the prices of prominent cryptocurrencies such as Bitcoin, Ethereum, Dogecoin and Polkadot fell from 14-20%. But as the news of regulation, not ban, came out, markets recouped some of the losses.

However, industry stakeholders point out that the government had earlier held consultations with them, so they are hopeful the government will consider their input while formulating the upcoming crypto bill.

The government held multiple meetings with the crypto industry to work on a framework to allow the use of cryptocurrencies in India. Prime Minister Narendra Modi recently urged the global community to work together and ensure that cryptocurrencies do not end up in the wrong hands.

The cryptocurrency industry on Wednesday urged the government to take a nuanced approach towards regulating crypto assets in India and asked investors in the country to remain calm and not to arrive at rushed conclusions.

Ashish Singhal, the crypto exchange CoinSwitch Kuber founder and co-chair of the Blockchain and Crypto Assets Council, said the industry had been actively communicating with all stakeholders, keeping investor protection at the forefront.

“Our discussions in the last few weeks indicate there is a broad agreement on ensuring that customers are protected, financial system stability is reinforced and India is able to take advantage of the crypto technology revolution,” he said.

However, the Reserve Bank of India has been wary of cryptocurrencies. Governor Shaktikanta Das recently described cryptocurrencies as a threat to the financial system. His predecessor Raghuram Rajan said that only a “handful” of the 6,000-odd cryptocurrencies in existence today might survive going forward.

“Do we really need 6,000 cryptocurrencies to do payments? One or two, maybe a handful, that is going to survive to be used for payments even if the technology is so useful that it is a substitute for cash and currency,” Rajan told the CNBC-TV18 television channel.

Cryptocurrencies have been on a roll across the globe and in 20 months their market capitalization has grown from less than US$500 billion to about $2.5 trillion. India has about 15 million crypto users with a total asset value of more than $6 billion.

However, the central bank governor recently claimed that the number of crypto accounts in India was exaggerated, with a majority of the accounts being of small denominations of 1,000 rupees or even less.

“We have received a lot of feedback that credit has been provided to open accounts and various other kinds of incentives are being provided to open accounts, but the total account balance is just about 500, 1,000 or 2,000 rupees, and that covers about 70% to 80% of the accounts,” he said.

Despite the uncertainties surrounding the industry, crypto startups are able to attract funding and two exchanges, CoinDCX and CoinSwitch Kuber, have enterer the elite unicorn club.