Regulatory Obstacles Slow Crypto Adoption in India and Pakistan, Chain Analysis Report Reveals
Hostile regulatory environments are seeing crypto adoption in India and Pakistan plummet, a new Chainalysis report reveals.
India, once home to the second largest crypto-loving demographic in the world, has seen its crypto adoption rank drop to fourth place year-on-year, according to a 2022 Chainalysis report. Its neighbor, Pakistan, is now the country with the sixth highest crypto adoption rate in the world, and fell three places in the same period.
According to the report, most Indian transactions involve ETH or packaged ETH, while most Pakistani transactions use stablecoins as carriers of value for money transfers. One ETH can be converted to an ERC-20 token like wETH at a 1:1 ratio for use in decentralized applications and NFT marketplaces.
In both countries, blockchain companies in the remittance space are starting to disrupt the market, cumulatively worth over $40 billion. The Pakistani government recently partnered with AliPay to receive remittances from Malaysia.
Heavy taxes reduce Indian trade volume.
Two new taxes introduced this year led to the drop in India’s ranking.
Indian crypto exchanges were hit hard by the 30% tax imposed by the government on cryptocurrency earnings in April 2022. Local news outlets estimated a 15-55% drop in trading volume in the days that followed. Internet traffic to crypto exchanges fell 40%.
WazirX, an Indian exchange that faced probes from India’s Enforcement Directorate earlier this year, saw its trading volume drop from $208 million to just under $100 million before the new law took effect. An additional 1% tax deducted at source came into force on 1 July 2022.
Despite the declines, one industry leader remains positive.
According to Vikram Rangala of Indian exchange ZebPay, “India has dozens of [crypto] projects that work to establish property rights, access tickets and membership cards, help rural artisans earn money, even give token holders the chance “to go skydiving with a movie star in Dubai,” and more.
He also theorized about the government’s reasoning,” From the conversations my colleagues and I have had, people in the Indian government, including MPs, are not anti-encryption per se. Some are very pro-crypto. But they are concerned that their constituents are trading a volatile asset without sufficient information. No public official can be seen to support something so risky for most people. “
On the other hand, Pakistan’s government has yet to take a position on the legality of cryptocurrencies. The central bank and the government recommended a complete ban on cryptocurrencies by January 2022. After that, the government formed three subcommittees to help implement policy.
The complicating factor is adding the country to the Financial Action Task Force’s gray list, limiting the country’s opportunities to receive financial aid.
Central Bank Governor Reza Baqir said in February 2022 that cryptocurrencies’ disadvantages outweigh their advantages.
Overall, NFTs and stablecoins account for most crypto volume
Vietnam took the top spot on Chainalysis’ crypto adoption index for the second year, while second place was the Philippines. Both can attribute their high ranking to the penetration of play-to-earn (P2E) games such as Axie Infinity that require the use of NFTs, and also to stablecoin transfers.
According to Manan Vora, a senior official at Liminial, a crypto wallet infrastructure provider in Singapore, stablecoins offer children sending money to parents in Vietnam and the Philippines a cheaper way to transact.
“Why pay 3% to a bank intermediary and wait two days for the funds to reach them when USDT/USDC can reach them within a minute, with almost zero fees?” he said.
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