Key points
- Decentralised cryptocurrencies such as bitcoin now provide an outlet for personal wealth
- Crypto assets are neither issued nor backed by any central bank
- China, Tunisia, Morocco, and Algeria go for an explicit ban on cryptocurrency
ISLAMABAD: Unlike the United States and some other countries, Pakistan is yet to recognise cryptocurrency as a tradable (digital) asset, which has already embarked upon not just regulating digital assets trade but also piling up virtual reserves.
Cryptocurrency is a digital currency where transactions are verified and records maintained by a decentralised system using cryptography, rather than by a centralised authority. Decentralised cryptocurrencies such as bitcoin now provide an outlet for personal wealth that is beyond restriction and confiscation.
There are hardly any globally consistent definitions of crypto assets (CAs); they represent assets—such as currencies or tokens, offerings and funds—that are privately issued digital representations of value that are cryptographically secured and deployed using distributed ledger technology (DLT).
A decentralised ledger
Unlike conventional financial record-keeping systems that are built on central recordkeeping, crypto assets—like Bitcoin and Ether—operate on a decentralised ledger and feature peer-to-peer exchange of value, usually in a pseudonymous manner. They are not under the specific control of any particular country or jurisdiction and are generally decentralised.
Inherent complexities, lack of transparency and standardisation, coupled with absence of, or weak, conduct supervision can impede the customers’ ability to make informed decisions.Inherent complexities, lack of transparency and standardisation, coupled with absence of, or weak, conduct supervision can impede the customers’ ability to make informed decisions.
Crypto assets are neither issued nor backed by any central bank. Due to their benefits of convenience, anonymity, and use for speculation, crypto assets have attracted growing acceptability among some sections of the global populace.
Global regulatory responses to the crypto assets are categorised as explicit ban (explicit ban on CAs with permission to utilise cryptography for uses such as research, experimentation, and record-keeping), implicit ban (prohibiting regulated financial institutions from facilitating and dealing in CAs, and/or issuing general caution to public about the underlying risks), allowed (implicit or explicit permission for CAs under an existing or new regulatory framework), and recognising it as a legal tender (CAs can be formally recognised as legal tender. However, only one country i.e. El Salvador has adopted this strategy, as its economy was already dollarised). China, Tunisia, Morocco, and Algeria go for an explicit ban on cryptocurrency.
Cautious approach
Pakistan—like Saudi Arabia, Bangladesh, Türkiye, and Indonesia—finds it in the tight spot in the second category of an implicit ban that prohibits regulated financial institutions from facilitating and dealing in crypto assets (CAs), and/or issuing general caution to the public about the underlying risks.
Pakistan is following a cautious approach towards cryptocurrency because they could be misused to commit illegal activities such as fraud, theft, tax evasion, money laundering, and terror financing due to the opaque nature of digital assets.
Pakistan is following a cautious approach towards cryptocurrency because they could be misused to commit illegal activities such as fraud, theft, tax evasion, money laundering, and terror financing due to the opaque nature of digital assets.
Inherent complexities, lack of transparency and standardisation, coupled with absence of, or weak, conduct supervision can impede the customers’ ability to make informed decisions.
For example, the filing of bankruptcy by FTX, the second-largest crypto exchange, revealed risky investments and inadequate governance and raised a red flag about possible fraudulent activities. Similarly, in the collapse of Terra USD, a stable coin, there were hints of fraud with regard to its reserves. That is why the government has maintained an implicit ban on cryptocurrency so far.
Legal tender
The US along with India, Germany, France, England, Japan, and Russia, is among the countries where cryptocurrencies are allowed with implicit or explicit permission under existing or new regulatory frameworks. El Salvador is the only country so far that considers the crypto asset as a legal tender.
Initial actions of the newly-sworn-in US President Donald Trump about cryptocurrency clearly indicate that Americans will soon have cryptocurrency as a legal tender just like the dollar.
President Trump’s aggressive pro-crypto approach is evident from the launch of his new crypto token called $Trump—popularly known as meme coin—and ordering a working group to finetune cryptocurrency regulations and also to explore the piling up of digital assets reserves just like the foreign exchange reserves.
Illegal and banned
Although researchers put Pakistan into the implicit ban category, the State Bank of Pakistan (SBP) describes anything related to cryptocurrency as illegal and banned.
Speaking to WE News English, an official of the central bank states, “SBP’s stance on cryptocurrency remains unchanged. To recall, SBP issued circulars whereby all banks/DFIs [Development Finance Institutions]/microfinance banks and Payment System Operators (PSOs)/Payment Service Providers (PSPs) were advised to refrain from processing, using, trading, holding, transferring value, promoting and investing in cryptocurrencies and facilitating the payments for sale/purchase.”
Likewise, a SBP circular issued on April 19, 2018, captioned “Prohibition of Dealing in Virtual Currencies/Tokens” says virtual currencies (VCs) like Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond, etc, or Initial Coin Offerings (ICO) tokens are not legal tender, issued or guaranteed by the Government of Pakistan. State Bank of Pakistan has not authorised or licensed any individual or entity for the issuance, sale, purchase, exchange, or investment in any such virtual currencies/coins/tokens in Pakistan, it adds.
Bitcoin hit a record high of $109,071 on the day when Trump was sworn in as president bettering an aggregate 60 percent after his winning of elections in November 2024.
“In view of the foregoing, Exchange Companies and Exchange Companies of ‘B’ Category are advised to refrain from processing, using, trading, holding, transferring value, promoting and investing in Virtual Currencies/Tokens. Further, exchange companies and Exchange Companies of the ‘B’ Category shall not facilitate their customers to transact in VCs/ICO tokens. Any transaction in this regard shall immediately be reported to the Financial Monitoring Unit (FMU) as a suspicious transaction,” the SBP circular maintains.
Public advisory
SBP also issued a public advisory in April 2018, cautioning the general public about risks associated with cryptocurrencies, and the non-availability of legal protection or recourse in the event of a loss, for any reason. It is reiterated that there is no change in the SBP stance on cryptocurrency and the public is cautioned on the high risks associated with investment in cryptocurrency and the non-availability of recourse in case of losses.
When asked the SBP official said that it is not that the central bank is against this cryptocurrency. Still, it just wants to safeguard the country’s monetary mechanisms as well as the general public against fraud and other speculative activity that is beyond anyone’s control.
According to the official, there have been several meetings of the coordination committees of the SBP and the Securities Exchange Commission of Pakistan (SECP). They have appointed a joint working group to develop a doable policy agenda in this regard that would be presented to the government for final approval.
Preferring to stay away
It is not just Pakistan staying averse to cryptocurrency, some mega investors from developed nations are also preferring to stay away from digital assets. An international news agency reported from the World Economic Forum in Davos last week quoting top investors keeping their cards close to their chest when it comes to virtual currencies.
“Despite watching Bitcoin’s scorching run past $100,000 and the inauguration of Donald Trump, who has pledged to be a crypto president in the US, some of the world’s largest investors said this week they still plan to stay on the sidelines.”
“I am neither an advocate nor a critic … it is not what it was supposed to be, which was an alternative to banking,” said Anne Walsh, chief investment officer at Guggenheim Partners.
Guggenheim Partners is a global investment and advisory financial services firm that engages in investment banking, asset management, capital markets services, and insurance services, having headquarters in both New York and Chicago.
I am neither an advocate nor a critic … it is not what it was supposed to be, which was an alternative to banking.” – Anne Walsh, chief investment officer at Guggenheim Partners
“To me, what crypto really correlates to is Nasdaq –it’s a risk-on appetite indicator to me,” she told the newswire forum on the sidelines of the World Economic Forum’s annual meeting in Davos last week.
Walsh said her investment firm, which manages assets of more than $335 billion, has so far not invested in crypto. Likewise, Nicolai Tangen, chief executive of Norway’s $1.8 trillion sovereign wealth fund, the world’s largest, said he did not see crypto becoming a part of Norges Bank Investment Management’s portfolio.
Record high
Bitcoin hit a record high of $109,071 on the day when Trump was sworn in as president bettering an aggregate 60 per cent after his winning of elections in November 2024. Its highest level was $73,000 in March 2024 and it was hovering around $6,000 before the American elections last year. The world’s largest cryptocurrency more than doubled in price last year after the US market regulator’s approval for exchange-traded funds (ETF) tied to its spot price, and optimism over easing regulatory hurdles with Trump’s return to the White House.
“As an investor, what makes it challenging is figuring out what the true fundamental value of crypto is,” says Saira Malik, chief investment officer and head of equities and fixed income at Chicago-based asset manager Nuveen.
Malik says, Nuveen, which has $1.3 trillion of assets under management, does not have any direct exposure to crypto. It does, however, invest in companies that could be exposed to the digital asset.
“There’s a lot of technology, a lot of intellectual power and talent that you need to bring into an organisation to really excel in (crypto),” says Melissa Stolfi, chief operating officer at Los Angeles-based asset manager TCW Group.
Stolfi said her firm, which manages assets worth a total of nearly $200 billion, remained focused on enhancing and maintaining its core business instead.
