Crypto gains currency regardless of legal status – Business

KARACHI: If you are a bank customer, chances are it has formally warned you against using your debit or credit card for crypto trading.

But regardless of the strictly worded SMS that every bank sends out en masse every few weeks, cryptocurrencies are gaining popularity in Pakistan.

“My understanding is that the annual cryptocurrency trading volume for Pakistan-based wallets has gone up to $25 billion, up from $18-20 billion a year ago,” said Zeeshan Ahmed, country head of Rain Financial, a Gulf-based trading platform for cryptocurrencies.

The State Bank of Pakistan (SBP) does not recognize cryptoassets, which are digital currencies where transactions are verified and recorded by a decentralized system. The SBP issued a formal notice last year advising the general public to exercise caution and refrain from trading cryptocurrencies.

Annual crypto trading volume for Pakistan-based wallets is estimated to have reached $25 billion

Nevertheless, the estimate of Rain Financial, which is actively trying to convince the SBP to recognize cryptocurrencies, shows that the annual trading volume of these digital assets has increased by 25-39 percent in the last year alone.

As for crypto wallets, which hold the keys to investors’ digital coins stored on public blockchain networks, Ahmed believes their number has almost doubled from five to six million a year ago to 9-10 million.

There is no official word on the scale of crypto trading taking place in Pakistan. The SBP did not immediately respond to a request for comment.

A rule of thumb often used by experts to arrive at a figure for total crypto asset holdings is to divide the annual trade value by three. Using this loosely defined criterion, it can be assumed that Pakistan-based wallets at any given time hold $8.3 billion worth of crypto-assets.

So how do people buy and sell cryptocurrencies if the practice is outright banned by the central bank?

Experts say the process is as easy as pie. One of the most popular ways to invest in cryptocurrency involves registering a wallet on a trading platform like Coinbase and then asking a foreign friend or acquaintance to buy and deposit assets on your behalf. In exchange, the final buyer back in Pakistan transfers the equivalent amount in rupees to the local bank account of the overseas Pakistani.

Another way to buy and sell cryptocurrency is through local crypto traders. They already own coins that they bought using the illegal payment system. They act as counterparties to anyone who wants to buy or sell crypto-assets using hard cash. Yet another method of trading cryptocurrency is via person-to-person payments. You get the digital currency in your wallet and transfer the money to the bank account of the local seller.

Ahmed says his persuasive efforts have yielded no concrete results, but it is not a lost cause. “The government and regulators are in a firefighting mode given the overall economic conditions. Innovative strategic projects are on the back burner. But that doesn’t mean we’ve given up. There’s still a lot of conversation going on with all stakeholders,” he said.

Talking to Sunrise On the condition of anonymity, a tech entrepreneur with many successful projects under his belt said he has been “in close contact” with both Coinbase and Binance, two of the popular crypto exchanges in the world, for their possible entry into the Pakistani market.

“They are very keen to start a business here. But the regulator here is quite reluctant. I have suggested to the SBP that we should formalize crypto trading using geo ring fencing,” he said.

One of the biggest obstacles to the legalization of crypto trading appears to be the expected outflow of dollars as a result of Pakistanis buying assets on foreign exchanges. Geo ring fencing solves that problem to a large extent, he said.

One must state one’s country of origin while opening an account with a crypto exchange. The two prominent crypto exchanges have agreed to the use of geo ring fencing, according to him. This means that the two platforms will ensure that any crypto assets held in Pakistani-based wallets will only be sold to Pakistani wallets. “Geo ring-fencing will ensure that $6-$10bn held by Pakistanis in crypto assets will remain with Pakistanis,” he said, adding that the government could also collect taxes on these holdings.

Pakistan Mercantile Exchange (PMEX) CEO Ejaz Ali Shah told Dawn that he is eager to roll out cash-settled futures contracts for cryptocurrencies. But it will become possible when SBP recognizes cryptocurrencies as assets, he said.

The country’s only commodity futures exchange allows approximately 25,000 investors to buy and sell different types of contracts – everything from gold, silver, oil and gas to copper, palladium and even the indices of global exchanges – on the platform every day. Apart from a few deliverable gold contracts, all of these futures contracts are cash-settled. In other words, their values ​​are pegged to international prices, but the actual payment is in rupees.

“It is my considered opinion that PMEX should offer crypto futures contracts,” he said, noting that the cash settlement of such contracts means no outflow of foreign currency.

“Crypto contracts are listed on the Chicago Mercantile Exchange (CME), which is the largest futures exchange in the world. CME accepts crypto contracts, so should PMEX,” Shah said.

Published in Dawn, 30 April 2023