Cryptocurrencies had a great year in 2021. In this period, we have seen the market go from being classified as a billion-dollar economy into a trillion-dollar economy. Aside from that, cryptocurrencies are gaining visibility in the mainstream world with, for example, El Salvador's adoption of Bitcoin as the official digital currency. As a result, investors are looking for the "new Bitcoin" on the market, hoping to find a great alternative in so-called altcoins. Unfortunately, many traders value an altcoin exclusively…
Pakistan’s authorities consider a complete ban on crypto after a scandal that cost thousands of investors $100 million.
A committee headed by the bank’s deputy governor recommended a complete ban on crypto. On Thursday, Sima Kamil, deputy governor of the State Bank of Pakistan (SBP), submitted the findings to the provincial court.
After a careful risk-benefit analysis, it emerged that risks of cryptocurrency far outweigh its benefits for Pakistan.
The committee cited concerns over the balance of payments, losses to investors and others.
The State Bank of Pakistan has concerns over the trading of cryptocurrencies by individuals and entities, as it results in an outflow of foreign exchange from the country.
Moreover, the committee cited the risks of using crypto for money laundering and terror financing. It also stated that the high volatility of crypto could lead to enormous losses for investors.
The Ministry of Finance, Federal Investigation Agency, and Pakistan’s Securities and Exchange Commission also had their members in the committee. Due to having members from all major regulators in the country, crypto may soon come under severe pressure.
Analysts like Ali Farid Khwaja, chairman of Pakistan’s KTrade KASB Securities, think that the regulators are serious this time.
“This indicates that, unlike in the past, this is a policy move which has greater consensus and coordination. The SBP-led report has been accompanied with a coordinated crackdown on the peer-to-peer network and illegal crypto operators by FIA and also warning letters issued by SECP.”
$100 Million Crypto Scam
The regulatory push comes after a crypto scam scandal that cost thousands of investors $100 million. The decision comes days after Pakistan’s central bank started a probe into the fraud.
Earlier, the committee sent a notice to a crypto exchange Binance. They also asked Binance’s regional manager to “explain his position on the linkage of fraudulent online investment mobile applications with Binance.”
The scam involved 11 mobile apps and 26 crypto wallets. Regulators received complaints from users after their apps stopped working. According to reports, some of the apps offered Pakistanis a way to invest in crypto. Instead, the apps collected user funds and then went offline. Information and official documents suggested that the apps were linked to Binance, but how is unclear.
The committee sent its report to the Sindh High Court, which ordered its formation in 2021. The court was ruling on the use of digital currencies.
Specifically, crypto entrepreneur and TV host Waqar Zaka brought the case to court. He wanted the court to set a precedent by ruling that cryptos are legal in the country.
There was some hope that this could happen, as many Pakistanis are invested in crypto. According to Chainanalysis Global Crypto Adoption Index, Pakistan is the third country by crypto adoption rate. It trails only Vietnam and India. However, the $100 crypto scam seemingly shifted the sentiment.
Crypto investors in Pakistan reacted to the news. However, Faisal Aftab, a co-founder of Zayn Capital, does not think Pakistan has decided to ban crypto. Instead, he believes that the country will likely look at ways to regulate it.
Majid Aziz, the Karachi Chamber of Commerce and Industry president, said that a blanket ban would not work. Instead, he proposes that authorities find ways to regulate crypto.
The mindset if something is going wrong is to simply ban it. Rather than trying to figure out the background, more often than not they go for a ban before going through the process. You can’t ban digital currencies.
Pakistan’s neighbour India started and then went back on a push to ban crypto last year. The country’s digital currency bill was supposed to ban all “private cryptos” in India. However, it has since returned to its stance after criticism from former regulators and the public.
India is the second country by crypto adoption. There are 20 million crypto investors in the country, holding some $5.39 billion worth of crypto assets.
On the other hand, China, Pakistan’s other giant neighbour, banned all cryptos in September last year.