Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
Cryptocurrency has become an essential financial lifeline of many in Pakistan, rising in prominence amid soaring inflation, steep rupee devaluation, and strict capital controls, even as policymakers remain paralyzed by indecision. Pakistan finds itself in a precarious confluence of economic stress, shrinking purchasing power, limited foreign exchange reserves, and mounting remittance dependence and despite a dramatic grassroots surge in crypto use, the state has failed to provide a stable legal framework.
According to the 2025 Global Crypto Adoption Index, Pakistan now ranks third globally behind only India and the United States in terms of adoption. This position underlines how deeply embedded digital assets have already become in everyday financial life. The regulatory gap is far from inert, it actively deepens economic vulnerabilities and exposes the country to severe risks, including illicit finance, economic instability, and institutional distrust.
The absence of clear, enforceable regulation has real consequences for Pakistan’s economy and its future. Since the legal status of crypto remains ambiguous, legitimate businesses, exchanges, fintech innovators, wallet providers, remittance platforms hesitate to set up operations on a scale. This implies a massive forfeiture of potential foreign direct investment, job creation, and tax revenues at a time when the economy could use all three. Meanwhile, much of the crypto activity has shifted to unregulated direct exchange channels or offshore platforms.
Experts warn that large volumes of money may be moving around unchecked, converted through informal currency exchange channels and diverted into digital assets completely outside the banking system. These informal routes lie beyond regulatory supervision, turning what could have been sources of innovation into the foundations of a parallel, opaque financial ecosystem, an economic monitoring black hole.
This vacuum has also shut down a wave of possible innovation. Blockchain technologies hold promise for addressing structural challenges in Pakistan, lower cost remittances, faster cross border transfers, more efficient diaspora inflows, transparent distribution of subsidies or welfare payments, and even long overdue reform of land registry through tokenization. However, without legal certainty, startups and entrepreneurs are unwilling to build scalable products. The result is a lost opportunity for what could have been a period of rapid technological transformation.
At the same time, macroeconomic stress is compounding the problem. The rupee has weakened sharply over the past few years, hovering around historic lows. That devaluation has reduced purchasing power, fueled inflation, and eroded the value of savings creating a natural incentive for individuals to seek hedges outside traditional banking. Many turn to crypto not out of speculation but as a defensive move to preserve value, protect remittance income, or avoid exposure to currency volatility. In this environment, digital assets become more than an investment class, and a form of financial independence.
Although it may seem like a rational response by individuals, it creates systemic risk when left outside the regulatory perimeter, because most crypto activity takes place through unregulated exchanges, informal peer-to-peer markets, or offshore platforms, large capital flows can move invisibly. This undermines financial transparency, weakens the effectiveness of monetary policy, and deprives authorities of data needed for economic management. Since these flows are not integrated into official macroeconomic reporting, they remain invisible to institutions responsible for stability. Additionally, financial exclusion makes the situation even more worrisome.
Many crypto users remain outside the formal banking system, leaving them with no consumer protection, no recourse in case of fraud, and no inclusion in any formal financial safety net. Ironically, citizens who turn to crypto because they feel locked out of traditional finance often end up relying on an unregulated system that carries even greater risks.
Pakistan’s legal framework only deepens the confusion. The laws governing banking and payment systems predate decentralized finance and treat crypto as “not legal tender”. Additionally, no clarity exists on whether tokens should be categorized as securities, commodities, property or something else entirely. That uncertainty results in inconsistent enforcement.
Cryptocurrency taxation is undefined. Gains, losses, conversions, none of this is codified. Similarly, exchanges and wallet providers operate in a grey zone with no legally enforceable rules for custody, audits, capital requirements, or consumer protection.
This vague environment turns Pakistan into fertile ground for money-laundering and illicit finance. Current AML laws do not explicitly cover virtual Asset Service Providers. That leaves enormous gaps in compliance. The global “Travel Rule”, sanctions screening requirements, politically exposed persons check, and transaction monitoring requirements become irrelevant when activity flows through unregulated channels with no enforcement mechanism. Therefore, Pakistan’s long standing exposure to illicit financial flows, maintaining this blind spot is exceptionally risky.
This regulatory paralysis largely stems from institutional disunity, with the State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP), the finance ministry, and the tax authority all asserting overlapping claims over digital assets, and in the absence of clear political direction, these institutions end up competing rather than coordinating, leading to turf battles, delays, and hesitation.
Regulators fear that drafting rules may be perceived as legitimizing a risky asset class, particularly in a vulnerable macroeconomic environment marked by debt pressure, reserve shortages, and currency instability.
However, technical capacity remains another weak point. The regulators lack in house expertise on blockchain architecture, decentralized protocols, sanctions compliance, and digital asset specific financial crime. This expertise gap causes extended periods of review with little movement toward actual regulatory decisions. The political transitions, shifting ministerial leadership, and short term bureaucratic appointments only add to unpredictability.
The government attempted to respond through the Virtual Assets Ordinance 2025, (VOA, 2025) establishing the Pakistan Virtual Assets Regulatory Authority (PVARA) and creating a Pakistan Crypto Council intended to shape industry direction. A prominent global exchange executive was included as a strategic adviser. On paper, this looked like a meaningful step. However, the structure and rollout of the new regime reveal substantial weaknesses.
The VOA 2025 remains temporary unless ratified by Parliament. No evidence exists of a comprehensive risk assessment, impact study, or broad based stakeholder engagement. Banks, fintech firms, compliance professionals, civil society groups, remittance companies, and telecom providers were largely excluded from consultations. The risk of unintended consequences remains extremely high.
Another concern is the limited regulatory and compliance expertise within the new institutions. Appointing high profile industry figures does not compensate for the absence of enforcement experience, supervisory track records, or specialized anti-money laundering law (AML) and sanctions screening capacity. The danger is that Pakistan ends up with a symbolic regulatory system rather than one capable of meaningful oversight.
Under this situation, the environment remains murky for ordinary users such as banks, and market participants. Similarly, conflicting signals from regulators, restrictions from banks, and permissive noises from political channels create an environment of legal uncertainty. Therefore, businesses are left unsure whether they are operating within the law or risking penalties down the line.
Pakistan now needs a clear, enforceable, and balanced regulatory framework. Policymakers must start by defining digital assets precisely distinguishing between payment tokens, utility tokens, stablecoins, tokenized assets, and securities like digital instruments. This is critical for determining which authorities should regulate which part of the ecosystem.
All virtual asset service providers should be licensed under the VOA 2025 that set out capital requirements, cybersecurity standards, segregation of customer funds, audit obligations, and custody safeguards. Additionally, the government needs to reconsider capital requirements, which are quite high to include startups and small businesses to promote growth. In the absence of such conditions, crypto platforms and wallet providers risk becoming gateways for illicit flows or collapsing without accountability.
AML and Combating the Financing of Terrorism (CFT) compliance must be embedded directly into the regulatory regime. Licensed entities should be required to implement strict know-your-client (KYC) procedures, report suspicious activity, conduct sanctions screening, and comply with global information sharing measures.
The proposed framework should ensure that regulated platforms also share aggregate transaction data with SBP and finance authorities so that crypto flows can be incorporated into economic planning and monetary policy assessments. If authorities do not have this visibility, growth of digital assets will continue to create a parallel financial system that undermines the state’s capacity to manage external accounts.
The VOA 2025 must be converted into an Act of Parliament after transparent debate and consultation. Regulatory sandboxes should be created with strict guardrails to allow innovators to test new products safely. Consumer protection mechanisms, dispute resolution mechanism, and transparency measures must be built into the law so that retail investors are not left exposed.
Pakistan’s crypto boom will not pause for regulatory delays. As inflation rises, the rupee weakens, and digital work expands rapidly, an increasing number of citizens will turn to crypto whether or not the government has established a framework. Delay of each month drives more activity into unregulated channels and amplifies systemic risk.
The issue is no longer that Pakistan should regulate crypto. It is now about whether the country opts for structured oversight or allows chaotic vulnerability to persist. In a fragile economic moment, structured oversight is not optional. It is essential for stability, credibility, and long-term economic resilience.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions