Pakistan Reader# 220, 2 October 2021
Abigail Miriam Fernandez
The global wave of cryptocurrency has engulfed Pakistan as people begin to invest and learn about cryptocurrency. Over the last few years, Pakistan has seen a revolution in crypto-investment with 4.10 per cent of the country’s population already in crypto trade and the local financial market is positioned to grow significantly. Chainalysis’ 2021 Global Crypto Adoption Index has Pakistan ranked in third place globally. Specifically, the on-chain retail value transferred metric used to measure the activity of nonprofessional, individual cryptocurrency users rank Pakistan in the top-10 globally. These rankings highlight the fact that grassroots revolution is taking place as Pakistanis enter the cryptocurrency ecosystem. Earlier in 2021, Khyber Pakhtunkhwa announced plans to build pilot cryptocurrency mining farms. Additionally, at the federal level, a committee was formed to study cryptocurrency regulation. In September 2021, Pakistan’s first cryptocurrency trading platform “Rain” was all set to be launched, as arrangements have been completed in this regard. According to the firm’s general manager, “Rain’s launch in Pakistan is at a pivotal time when the market is growing exponentially and people desperately need a licenced and regulated cryptocurrency trading platform. Our aim is to make cryptocurrency trading super secure, seamless and cost-effective for every current as well as aspiring crypto-trader in the country.”
Pakistan’s crypto scene
Pakistan has witnessed an increase in trading and mining cryptocurrency, with interest manifesting in thousands of views of related videos on social media and transactions on online exchanges. According to a report by Chainalysis, Pakistan received a little less than USD 1.5 billion in cryptocurrency during 2019-20.
Although cryptocurrency itself is not illegal in Pakistan, the on-and-off ramp connecting the ecosystem to traditional financial institutions comes with challenges. An SBP circular, issued in April 2018, advised “all banks and payment system operators to refrain from processing, trading and promoting in virtual currencies token and not facilitate their account holders to transact in VC and tokens,” because of which Pakistani residents are not able to use their bank accounts or online wallets to directly transfer funds to their cryptocurrency exchange accounts. To avoid this restriction, most Pakistani cryptocurrency traders and investors use peer-to-peer (P2P) transactions as a method to fund and withdraw from their exchange account.
Most investors seem to be using Binance, followed by Localbitcoins.com as well as PakCoin, a home-grown cryptocurrency. Another major exchange, Coinbase, is also popular among Pakistanis even though they are not able to use it for trading. Additionally, there is Pakskaters, a platform for PakCoin staking and Adaigi which has a wallet that allows businesses to accept PakCoin payments and convert them into fiat money.
Risks and challenges involved in adopting crypto
While Pakistan is on the path to adopt the concept of cryptocurrencies, there are several challenges and risks involved as the country plans to begin its cryptocurrency journey.
First, the concern from foreign countries and institutions. Several countries including China have expressed their displeasure with the cryptocurrency ecosystem. Similarly, the IMF which is also a large lender to the country does not recommend the adoption of cryptocurrency as legal tenders. Additionally, the FATF has called on the government to better regulate the cryptocurrency industry.
Second, the possibility of forex exiting Pakistan. Given that most of the population in Pakistan is poor and religiously conservative, where gambling is illegal and a stigma, the socio-economic environment does not favour allowing speculation in cryptos. Additionally, there is a policy paranoia about inadvertently leaving a back door open that could lead to forex exiting Pakistan.
Third, the questions of regulation. In 2018, the State Bank of Pakistan (SBP), imposed a “prohibition” on dealing in virtual currencies for the entities it regulates and “advised” the public to “refrain from indulging in” cryptos. However, the mere issuing of circulars with instructions that prohibit the public as well as the financial sector to trade in virtual currency will not mitigate the need to provide comprehensive regulations. The sector would have to be adequately regulated to counter the potential risks of money laundering, terrorist financing as well as organized crimes associated with cryptocurrency.
Fourth, technological challenges. The key to a successful crypto ecosystem would be when technology and policy work in sync. Thus, to have informed and nuanced policy decisions on cryptos, the digital assets market will have to be customised to meet the economic needs of Pakistanis rather than the convenience of global speculators.
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Usman Hayat, Sumbul Naved Qureshi, “Pakistan needs to embrace digital assets, cryptocurrencies can wait,” Reuters, 24 September 2021
“Cryptocurrency trade platform set to launch,” Reuters, 26 September 2021
Umar Farooq, “Pakistan moves to bring cryptocurrency boom out of the dark,” Reuters, 16 July 2021
“Pak govt sets up committee to study cryptocurrency regulation,” Business Today, 16 July 2021
Sohail Sarfraz, “Cryptocurrencies: 'SECP has not issued licence to any trading platform',” Business Recorder, 29 September 2021
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“From fitness to cryptocurrency — Umair Orakzai makes a strong case for digital,” Daily Times, 10 September 2021
Abdul Rauf Shakoori, “Regulating Crypto: An uphill task for Pakistan,” Daily Times, 23 May 2021
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Omar Qureshi, “Missing out on the Crypto Revolution,” The Express Tribune, 28 February 2021