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KARACHI: Pakistan recorded around $20 billion of cryptocurrency value in 2020-21, according to a latest research report by Policy Advisory Board (PAB) of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).

The report has recommended that government authorities must regulate cryptocurrencies by implementing the legal framework to better align with Financial Action Task Force (FATF) and the International Monetary Fund’s (IMF) guidelines.

It said that cryptocurrency adaptation in Pakistan has gained momentum in the last couple of years, and the country ranked 3rd in the Global Crypto Adoption Index 2020-21, showing an abnormal increase of 711 percent.

“Pakistan recorded around $20 billion of cryptocurrency value in 2020-21,” it said.

However, the current legal framework in Pakistan has held the cryptocurrency under the grey area.

The State Bank of Pakistan (SBP) advised the general public to refrain from indulging it cryptocurrencies, whereas also put prohibition on entities under its umbrella on dealing in virtual currencies. Pakistan’s trading and lending partners such as China and IMF have both levelled criticism against the technology.

Moreover, the FATF has called on the Pakistani authorities to better regulate the crypto industry.

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The report said investors are; however, currently using a peer-to-peer (P2P) crypto investing mechanism which renders investments in crypto assets undetected.

Pakistan has a great potential to encash the windfall gains of billions of dollars in crypto assets of Pakistani/ dual nationals. It is imperative to first channelise the accumulated virtual currency assets of Pakistani investors which will help surge reserves, as well as, additional capital can be pumped into the already challenged economy, the report said.

A one-time asset declaration scheme along with some capital gain tax is highly recommended. Moreover, there is an urgency to develop a regulatory framework and national cryptocurrency strategy to adopt the ecosystem at the earliest to safeguard economic interest and minimise vulnerabilities to the new system.

In any case, there are huge speculative gains existing in digital coins which may not be given the status of a legal tender, but should be formalised as an asset class.

In addition, crypto-linked exchange traded funds (ETFs) will attract both domestic and foreign portfolio investments. This will help the Pakistan Stock Exchange to regain its status of an emerging market. Any undue delay in converting these into solid assets may divert them to other more convenient countries.

The influx of cryptocurrencies has taken the world by storm, with many countries still figuring out the possibilities of embracing the decentralised financial technology by carefully examining opportunities and threats rather than putting an outright ban or embracing it completely. Bitcoin is the first decentralised digital asset, introduced in 2006, which has now reached market capitalisation of around one trillion US dollars.

Throughout the world, countries are having difficulties in regulating this new decentralised technology-backed segment. Economies are indecisive about the future of cryptocurrency. Small countries like El Salvador has adopted Bitcoin as legal tender whereas big economies like the US, China and India are trying to put restraints on it either by introducing blanket bans or by adopting it with a limited scope.

Copyright Business Recorder, 2021

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