Despite the “ban” on investing in cryptocurrencies, Bitcoin and crypto-mania have now fully infiltrated Pakistan. A huge number of people have invested in Crypto Assets. Binance, a crypto exchange, is now the fourth most downloaded app in Pakistan.
Pakistani Public figure Waqar zaka on facebook’s private group is advising Common people on how and where to invest in the crypto space.
The ban by the State Bank of Pakistan (SBP) now has little relevance and no credibility. It has even become redundant as the Khyber Pakhtunkhwa government has acknowledged cryptocurrency and has announced plans to build cryptocurrency mining farms.
Citizens have found a way to circumvent restrictions by using offshore wallets such as Neteller, Skrill, and Payoneer. Further, hawala operators are facilitating the transfer of funds in offshore crypto exchanges in return for the payment made domestically.
Formulate Regulatory Framework
It is high time for Pakistan to formulate a regulatory framework for this asset class. The “ostrich strategy” of ignoring the emergence of crypto assets is no longer viable.
Ignoring The Emergence Of Crypto Assets Is No Longer Viable
There are more than $2 trillion of assets in the crypto economy. Coinbase, the largest exchange, is a listed company with close to a $50 billion market cap.
All leading investment banks are facilitating investments in crypto to their clients and the largest fund managers such as Blackrock have begun investing in it.
The most frequent critique from regulatory circles is that crypto investments might not have effective Know Your Customer (KYC) and Anti-Money Laundering (AML) controls and might create some issues with Financial Action Task Force (FATF) compliance.
If the regulators have legitimate concerns around these issues and supervisory body do not want investors in Pakistan to put their savings in these assets, then earnestly enforce the ban.
Unknown wallets and shady platforms are flooding social media sites. The Ostrich strategy currently being implemented is quite productive. It merely shifts the demand for crypto towards unregulated/underground operators, which is the worst possible outcome.
Firstly, people are forced to use unregulated platforms where they have little investor protection.
Secondly, it encourages growth in hawala/money laundering by providing those operators with customers who are attracted to this asset class.
Thirdly, it robs the taxman from collecting potential tax income from these transactions.
Fourthly, it prevents potential investment into Pakistan from large, regulated financial companies that are operating in the crypto economy.
The crypto economy is large and growing rapidly. Pakistan can tap this capital for inbound investments. An example is the recent donation of 5 million STX tokens (now worth $10million) to LUMS by Stacks – a US-based blockchain technology company.
By setting up a regulatory framework, Pakistan can attract tier-1 blockchain companies and exchanges. These companies have lower risk thresholds compared to traditional financial services companies. So, while Paypal has declined the invitation to enter into Pakistan, crypto wallets and exchanges such as Coinbase, BlockChain.com and Binance would probably be more forthcoming.
This would only happen if there is a stable and supportive regulatory framework in place. These companies will ensure that in order to comply with local regulations, they put in place proper KYC/AML rules.
This, in turn, would get the asset class documented and make it part of the tax net, just like investing in other asset classes such as stocks, commodities, and bond