According to a recent report by the Federation of Pakistan Chambers of Commerce and Industry, the country has shuffled roughly $20 billion in cryptocurrency in 2020-21
The Chamber Association strongly recommends regulating cryptocurrencies and related economic activities
The report says, a legal framework should be put in place to regulate the crypto market, based on the guidelines of the Financial Action Task Force and the International Monetary Fund.
The adaptation of cryptocurrencies in Pakistan has gained momentum in recent years and the country ranks third in the Global Crypto Adoption Index 2020-21, but with an astounding 711 percent increase. The country’s trades are worth $20 billion in 2020/21. However, the current legal framework in Pakistan has kept cryptocurrency in a gray area, prone to all kinds of fishy activities.
The State Bank of Pakistan strongly discourages individuals from becoming financially involved in cryptocurrencies and banned companies under its jurisdiction from them. Pakistan’s important trade and lending partners China and the IMF had previously been critical of the technology.
In addition, the Financial Action Task Force has urged the Pakistani authorities to better regulate the crypto industry.
What Pakistan should do to establish a functioning national crypto policy
However, according to the Chamber report, many investors are currently using a peer-to-peer crypto investment scheme that disguises crypto investments. Pakistan has a vested interest in keeping the unexpected billions of dollars in crypto profits inside the country and being able to levy taxes on them. To this end, it is imperative to first channel the accumulated virtual asset values of Pakistani investors, which will help boost reserves and pump fresh capital into the struggling economy, the chamber report states.
Furthermore, the government is strongly encouraged to make a one-time declaration of assets mandatory for all citizens and to introduce a capital gains tax. In addition, the report sees an urgent need to set up the earlier mentioned regulatory framework and to develop a national strategy for cryptocurrencies in order to protect economic interests and minimize the error-proneness of the new crypto-economic system.
Another aspect is the extremely high speculative profits from cryptocurrency assets. According to the report recommendation, cryptocurrencies should not be given legal tender status but should be classified as a new asset class.
Moreover, exchange-traded funds (ETFs) tied to cryptocurrencies will attract domestic and foreign portfolio investments. This will support the Pakistan Stock Exchange to renew its status as an emerging market. Any undue delay in converting them into solid assets may cause them to migrate to other countries with less complicated bureaucracies.
Global crypto adoption
Cryptocurrencies have taken the world by storm, with many countries still in the process of evaluating the implications of decentralized finance, carefully assessing the opportunities and threats rather than imposing a complete ban or simply adopting the technology en bloc. Bitcoin was the first decentralized asset ever launched; that was in 2006, and it has since reached a market capitalization of more than a trillion dollars.
All countries around the world are struggling to a greater or lesser extent with the regulation of this new decentralized, technology-enabled financial segment. Major economies are undecided about what the future of cryptocurrencies should look like.
Small countries like El Salvador have already adopted Bitcoin as legal tender, while large countries like the USA, China, and India are trying to find a compromise between a total ban and government-regulated approval under strict supervision.
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