Ignored but Inevitable: The Rise of Crypto in Pakistan’s Shadow Economy

Pakistanis have invested between $20–25 billion in crypto despite a national ban, placing the country eighth in global rankings for crypto activity, according to Chainalysis and the Asian Development Bank.

This contradiction between official policy and on-ground reality framed a session titled “The Future of Cryptocurrency in Pakistan” at the Pakistan Business Council’s Dialogue on the Economy conference, held at Serena Hotel, Islamabad. The session, led by Dr. Asad Samar, CEO of Square Point Trading Group, focused on how cryptocurrencies work, their evolution, and the regulatory challenges and opportunities within the local context.

The discussion began with an overview of cryptocurrency’s origins, explaining that the idea behind it was to enable payments directly between individuals without relying on banks or other central intermediaries. Blockchain, or hash chain technology, was introduced as a way to record transactions in linked blocks of data that cannot be altered once written. This ledger is distributed, allowing all participants to verify the history of transactions.

The role of miners was also highlighted, as they are responsible for linking new blocks to the existing chain by performing computationally expensive work. In return, miners are rewarded in cryptocurrency. The concept of scarcity was also discussed, with a key example being Bitcoin, whose total supply is capped at 21 million coins, ensuring its long-term value.

However, it was noted that cryptocurrencies have evolved far beyond their original purpose as a payment mechanism. Today, there are thousands of coins with different functions, from improving existing protocols to powering in-game tokens or even tokenizing real-world assets like property. The emergence of these use cases has further diversified the crypto space, making it more than just a financial instrument but also a technological tool with applications across industries.

The rise of cryptocurrencies has largely been driven by price movements. It was pointed out that Bitcoin, which was priced between $500 and $700 in 2016, has since skyrocketed to over $100,000 per coin. This surge has contributed to a market capitalisation in the trillions of dollars and established crypto trading as a major global activity. As a result, retail investors and institutional players alike have become more interested in cryptocurrencies, driving volumes on exchanges that now exceed traditional finance in some instances.

Adding a global perspective to this market evolution, Li Xing Gan, Financial Markets Strategist at Exness, commented on the current state of the sector:

“Even though the market is experiencing a cooling, we can not, and probably should not forget that it is still at a rate so high that it would seem like science fiction even a few years ago. Also, we need to keep in mind that a healthy market needs the occasional correction to bring overbought assets back to their ‘true’ value. I would be more curious to see if this is confirmation that the cryptocurrency market and its participants are maturing, making it act more like their equity or precious metals equivalents. Because if that is true, i.e. that this extremely liquid market has reached maturity, then it will likely be easier to forecast and analyse.”

Around 50 crypto exchanges operate worldwide, with a small group handling most of the trading volume. High-frequency traders, statistical arbitrage funds, and professional market makers are major players, using advanced strategies to profit from small price differences across exchanges. These sophisticated strategies involve arbitraging between exchanges, utilizing fast-paced algorithms to exploit minor price discrepancies before others can react. The trading activity has become so large that it now rivals traditional financial markets, with daily volumes running into the hundreds of billions of dollars.

As the market matures, more regulated platforms are playing a role in helping investors navigate the crypto space. For example, platforms like Exness have expanded their offerings to include access to cryptocurrency markets, allowing both individual traders and institutional investors to engage with the rapidly growing sector. This shift is part of the broader trend where traditional financial institutions and well-established trading platforms are increasingly adding cryptocurrency to their portfolios, ensuring that the sector gains further legitimacy.

Turning to regulation, it was observed that the sector has seen rapid developments, particularly in the United States, where the 2025 Genius Act recognizes stablecoins as legal tender and major traditional financial institutions have entered the space. By contrast, China has enforced strict regulations, including a blanket ban on crypto exchanges since 2023, but has shown signs of adopting a more open approach through Hong Kong’s regulatory sandbox. In the Middle East, the UAE’s Virtual Assets Regulatory Authority (VARA) has introduced clear and supportive regulations that have led to an influx of crypto businesses into the region. Other countries are also watching these developments closely as they plan their own regulatory frameworks.

In Pakistan, despite a crypto ban in place since 2018, data indicates that the country remains a significant player in global crypto markets. It was highlighted that Pakistanis have invested over $20 billion in crypto over the past decade, with recent reports suggesting losses of approximately 600 billion rupees over the past year through unregulated channels. The unregulated nature of the market means that Pakistani investors are exposed to risks such as fraud, hacks, and price volatility.

Given this backdrop, it was suggested that a blanket ban on crypto trading is not effective, and that Pakistan could consider legalizing and regulating the sector. Possible steps include licensing local exchanges, limiting the range of tradable coins, and controlling capital outflows via regulated platforms, while ensuring tax revenue from this already active market. By taking these steps, Pakistan could protect investors, reduce illicit activities, and generate tax income from a sector that is growing rapidly despite its current legal status.

In the question-and-answer session, some participants expressed concern about the lack of reserves backing cryptocurrencies and questioned whether the sector is merely another form of speculation. It was explained that the value of cryptocurrencies is driven by supply and demand, with limited supply in protocols like Bitcoin creating scarcity, while growing interest from both individuals and states contributes to the demand side. The comparison to gold was made, with the argument that much of gold’s value is also driven by market perception rather than practical use. As such, cryptocurrencies are often viewed as a store of value, akin to gold, with their worth being determined by collective market sentiment and the faith that users place in the system.

Although crypto may not directly impact everyday issues like jobs or inflation, it was emphasized that, given the size of the market in Pakistan, policymakers should shift focus from prohibiting the asset class to regulating and taxing it in a way that benefits the economy. As long as the sector continues to thrive, it will impact the financial landscape, and formal regulation would allow Pakistan to tap into this growth while ensuring consumer protection and stability.

Regarding domestic regulatory efforts, the formation of a Pakistan Crypto Council and the proposed PVARA, a crypto regulator modeled after the UAE’s VARA, were discussed. Although details remain unclear, these steps were viewed as positive developments towards establishing a formal framework for digital assets in the country. Such a framework could provide clarity to businesses, investors, and consumers alike, helping to grow the market in a controlled and transparent manner.

Follow ProPakistani on Google News & scroll through your favourite content faster!