Taliban crackdown freezes Afghanistan’s crypto market

The Taliban ban on digital currency has halted Afghanistan’s cryptocurrency market, which experienced a massive expansion after the insurgent group took over the country last August – says a new study of chain analysis.

The Taliban initially considered riding the crypto wave as well. (Photo: US Department of Defense/Lt. jg Joe Painter/LEASED, Flickr, License)“Afghanistan placed 20th in our 2021 Crypto Adoption Index, but since the Taliban’s takeover last August has fallen to the bottom of the list,” Chainanalysis said.

This comes two months after the regime imposed a nationwide ban on cryptocurrency, then arrested a number of digital token dealers who refused to comply.

Although Afghanistan’s low internet access and unreliable power supply are not particularly conducive to crypto activity, the Taliban’s rise to power last summer nevertheless sparked a small digital currency revolution.

The surge in crypto usage was fueled by the exclusion of Afghanistan from the global financial system after Taliban fighters seized the capital of Kabul.

In the most serious context, the SWIFT system, which supports international financial transactions, was suspended in the country. In addition, the US froze the Afghan central bank’s reserves – leading to an effective paralysis of the local banking sector.

Afghans, unable to receive remittances from their relatives abroad or even make domestic transfers, are therefore turning to crypto-based alternatives. For example, one of the Afghan cryptocurrency apps, HesabPay, had 380,000 active users in March just three months after its launch.

Even the Taliban initially considered riding the crypto wave.

In February, the group said it would investigate whether cryptocurrencies could be compatible with Islamic financial practices – as part of efforts to find a solution to the destructive liquidity crisis. It nevertheless concluded that cryptocurrency was sinful – particularly for its perceived proximity to gambling.

Chain Analysis also noted a possibility that some of the increased crypto purchases were being used to launder the proceeds of Afghanistan’s opioid and methamphetamine production, citing an anonymous source indicating that this was the case. However, there does not seem to be more evidence to support this hypothesis.