KARACHI: The victory of Donald Trump in the 2024 US presidential elections has given cryptocurrencies a new lease on life, nudging countries like Pakistan to finally accept the reality of digital assets, say experts. But, they warn, more is needed to ensure that the country introduces right regulations at the right time.
“Cryptocurrencies are a grey area in Pakistan,” said a small crypto trader who spoke to The News on the condition of anonymity. He said that Binance’s strong presence here, one of the largest crypto exchanges, is in itself a declaration that the currency is not outright illegal.
“People move towards this asset class because of its high liquidity and almost no bars on minimum investment,” he explained, adding that the traditional investment option had been real estate but with property prices sky-rocketing and a demand slump, most investors are wary of parking their money in an asset with low liquidity.
Having shown their reluctance to adopt the rapidly evolving technology that led to a ban on cryptocurrencies by the State Bank of Pakistan (SBP) in 2018, Pakistani authorities are finally moving towards legalising cryptocurrencies and blockchain-based technologies.
Last week (Jan 8), a lawmaker from the ruling party PML-N introduced a private member’s bill, the Virtual Assets Bill 2025, to establish a regulatory framework for the digital asset.
Web3 and digital asset consultant Arsalan Khan said that after Trump’s victory, the world is now treating crypto as a separate asset class and now “Pakistan has to adapt to this situation and bring in the regulations.”
“But when it comes to a government-backed trading environment, this is where the government will make the biggest mistake because it is going to treat crypto as a trading asset and will introduce the regulations accordingly rather than treating it as technology and facilitating that technology to move further in Pakistan.”
Crypto adoption
Blockchain analytics firm Chainalysis ranked Pakistan ninth on its Global Crypto Adoption Index 2024. Unofficial figures say that there are around 20 million crypto users within the country registered on different exchanges.
On this, the crypto trader said that a high number of accounts does not mean the trading value is high too. “Bitcoin is close to $100,000. Pakistani traders may hold a fraction of this. The high number of accounts does not mean people have eye-popping wealth stored in virtual currencies.”
The recently introduced virtual assets bill aims to create a structured set of rules and regulations for the issuance, use, trading and management of virtual assets within Pakistan. It mandates that virtual assets in Pakistan must be tied to the value of the Pakistani rupee. This approach ensures currency stability, reduces volatility and establishes trust in these digital assets by connecting them to the nation’s fiat currency.
On this, the trader said, pegging the currency to the Pakistani rupee may not be beneficial. A blockchain developer who also spoke on the condition of anonymity said that the government’s approach towards digital assets is contrary to the purpose of virtual currencies that were introduced to evade government manipulation and interference.
Crypto is a highly volatile digital asset. Its biggest fall was noticed in 2022 when the price of Bitcoin fell below $19,000 from nearly $70,000 months ago, amid a broader market meltdown driven by rising interest rates, inflation and economic uncertainty spurred by the war in Ukraine. It reclaimed its lost space when Trump embraced it during his election campaigns.
In Pakistan, cryptocurrencies have long enjoyed a bad name with investors being secretive of their transactions. The crypto trader said that this is because of lack of acceptance from the government rather than the questionable nature of the asset.
“Seeing it only through the lens of money laundering or any illegal money transfers is not right. It is a trading option for most people who want to find some financial stability,” he added.
‘Withdrawing gains’
Questions on the penetration of cryptocurrencies here were raised when a crypto trader was kidnapped in Karachi in December. Per the reports, the kidnappers used the trader’s Binance account to transfer the ransom amount to different accounts through the app.
Explaining how this is done, the crypto trader told The News that investors transfer amounts to USDT traders in their local banks and get the equivalent coin in their mobile wallets on crypto apps.
USDT is a popular stablecoin in the cryptocurrency world. Unlike volatile cryptocurrencies like Bitcoin or Ethereum, USDT is pegged to the value of traditional currencies, primarily the US dollar, on a 1:1 basis. This means 1 USDT is designed to be equal to 1 US dollar.
According to independent videos made by content creators on YouTube and reviewed by The News, the process of withdrawing gains or converting the asset into the local currency is quite simple.
Per the creators, “first, [people will have to] find a platform or exchange that supports USDT and PKR trading. Once they are logged into their account, they should locate the trading section and and look for the USDT/PKR pair. Sell the USDT for PKR by placing a sell order.”
Once the conversion is done, people should head to their accounts’ withdrawal section. Select PKR as the currency to withdraw and choose a method that works for them -- such as a local bank transfer or a mobile wallet. Enter the amount, provide the necessary details and confirm your withdrawal.
There is a peer-to-peer (P2P) method as well, where people can trade directly with buyers through a P2P marketplace. For that, they will have to select USDT as the asset they are selling, choose a payment method they prefer and filter buyers based on reputation. Once they have found a trustworthy buyer, they can transfer their USDT and confirm the payment in PKR.
Government role
Although Arsalan Khan believes the government should treat cryptocurrencies as technology, he shared a few ideas he thinks could help authorities keep checks on the flow of money. “The government should consider flagging areas from where it could collect the required data. The onchain metrics today can easily be connected with centralised exchange accounts that require KYC (know your customer). If someone on Binance is sending money to onchain wallets, the app already knows the address of the receiver.”
On that basis, he said, the government could build a coherent infrastructure to oversee the flow of money -- even if the withdrawal is made outside the country, the government, through such infrastructure, would know the amount of money withdrawn by an individual and could demand tax on it. Khan added that for P2P and USDT transactions, licensing could play a big role in keeping the government informed. Only licensed USDT traders should be allowed to sell or buy crypto.
Speaking more on establishing data points he said that the government should link banking channels with such trading. “Traders all over the world use banking channels to convert the virtual assets in fiat currencies. Another step is to build an internal programme that follows all onchain activities regarding certain wallets. For this, the government can set up a mechanism where all onchain wallets are connected KYC-compliant accounts on centralised exchanges, which are then compiled together to see how KYC-compliant accounts are interacting with other onchain wallets. This will keep the government in loop. Once the data is collected, authorities can create a simple method for collecting taxes at different checkpoints.”
But Khan expressed scepticism over the government’s approach and shared that authorities may only be interested in introducing a capital gains tax or taxes at the on/off ramping phase, which, per him, is a shallow approach to dealing with cryptocurrencies.
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