Reposting an excerpt from one of my Quora Answer:

The regulatory direction is very clear. No agency of the government likes the idea of cryptocurrencies. The Reserve Bank of India, The Ministry of Finance and the Securities & Exchange Board of India have publicly spoken against it. I don’t see a time in the future where it will be openly allowed. The regulatory clampdown on them is happening in many countries because most people who are involved are innocent young boys and girls who buy the fancy idea that the fiat monetary system is fake and that Bitcoin should and will replace it one fine day.

No and Yes, perhaps. In 2018, RBI announced a ban on the purchase of cryptocurrency for regulated entities/financial institutions. While people may argue the case that entities that aren't regulated can indulge in buying & selling them. You can read this BBC article for more info. However, in 2020 the Supreme Court lifted the ban imposed by RBI on financial services firms from trading in cryptocurrencies. The fact that GOI kept issuing warnings against them was a sign of bad things to come. Startups in the space were shut down or just lost momentum because of the government's stance on the matter.

What's next? I don't know. The regulatory landscape is grey for cryptos and SEBI registered intermediaries mostly won't get involved unless the ruleset is as clear as day. I'm currently not an expert on the subject.

I hope this helps.

Is Bitcoin Trading legal in India?