Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
Pakistan’s relationship with crypto has been anything but commonplace. The country once stood among those that moved quickly to ban cryptocurrencies, citing risks and uncertainty. Yet within just a few years, the same state created the Pakistan Crypto Council, signaling recognition of the technology’s inevitability, and then went further by beginning to draft formal regulations. This shift from prohibition to cautious engagement symbolizes one of the most dramatic policy reversals in recent memory, emphasizing both the growing adoption of digital assets in Pakistan and the pressure on policymakers to respond to a fast-evolving global financial system.
The issuance of Virtual Assets Ordinance, 2025, was therefore a welcome development. It reflected seriousness on the government’s part to bring digital assets within a legal framework and to provide a foundation for future regulation. However, the Ordinance was drafted and issued without seeking input of industry experts, or the public, leaving critical gaps in its design. It was issued as a temporary measure, without permanence of legislation passed through parliament, thereby creating uncertainty about its continuity.
The Ordinance imposes extremely high capital requirements on exchanges and service providers, far beyond what most startups or local fintech firms can afford, effectively restricting entry to only a few large players. The requirements for stablecoin issuers are without specifying proper reserve backing, audit requirements, or redemption rights. It creates arbitrary thresholds for so-called significant issuers without providing comprehensive stress testing frameworks or proportionate oversight.
The Ordinance has failed to design tiered licensing for different categories of service providers, forcing every operator into the same rigid mold. It has left ambiguity in the roles of regulators such as the State Bank of Pakistan (SBP) and Securities & Exchange Commission of Pakistan (SECP), raising questions of overlap and enforcement. It was an ordinance, not a comprehensive act, thus lacking permanence and predictability investors require.
Pakistan hosts one of the world’s largest unbanked populations, and regulated crypto wallets could provide financial access to millions excluded from traditional banking. With a US$30 billion annual remittance market losing billions in fees, legal crypto transfers could dramatically cut costs and boost foreign exchange inflows. A formal crypto ecosystem would attract foreign investment into exchanges, blockchain startups, and fintech, creating high-value jobs for the young, tech-savvy workforce.
Proper taxation could turn the current US$20 billion informal market into government revenue, while crypto also offers a hedge against rupee depreciation. Beyond finance, blockchain can enhance transparency in supply chains, land registries, e-governance, and trade, strengthening credibility in international commerce. Pakistan could emerge as a leading digital asset hub in South Asia with decisive and pragmatic regulations.
The tragedy is that policymakers remain hesitant to embrace the right approach. Instead of designing regulations that acknowledge the unique nature of crypto, they attempt to force it into the mold of fiat currency. Fears are voiced that crypto will dry up Pakistan’s foreign exchange reserves, as though every transaction were equivalent to capital flight.
SBP has even proposed capping outbound transfers in crypto to US$100,000 per year, an idea that not only misinterprets the mechanics of digital assets but also threatens to choke innovation before it begins. Such a cap, if enforced, would discourage startups, drive entrepreneurs abroad, and push trading activity further into informal offshore channels. It would deprive Pakistan of tax revenues, employment, and international credibility. The claim that such restrictions are necessary to protect reserves does not withstand scrutiny.
Crypto is primarily used as an asset class, like stocks or gold, not as a substitute currency draining SBP’s reserves. Most crypto trades are executed within exchanges and do not touch foreign reserves at all. Far from being a drain, legal crypto remittances and earnings by freelancers could increase inflows of foreign currency. Countries that have legalized and regulated crypto, from the Philippines to the United Arab Emirates (UAE), have in fact seen inflows of investment and capital, not outflows. Restricting transfers does not stop them, but it simply pushes them underground, beyond the reach of regulators.
The counterargument is often that weak and undocumented economies must begin cautiously, and that capping outbound flows makes sense to prevent tax evasion and asset hiding. Yet international financial frameworks provide a stronger, evidence-based response. The Financial Action Task Force (FATF) has made clear that the correct approach is risk-based regulation, not arbitrary ceilings.
Licensing of exchanges, mandatory know-your-customer requirements, application of the travel rule, and integration of banks with virtual asset service providers give the necessary control environment required to monitor crypto transactions. Jurisdictions that tried hard bans or blunt restrictions, such as Nigeria, discovered that informal peer-to-peer markets simply grew larger, forcing them to return to supervised regulation later. On the contrary, countries that implemented proportionate frameworks, such as Singapore and the United Kingdom, have managed to attract investment while minimizing risks of tax evasion and money laundering.
A more effective policy approach is to regulate on/off-ramps, license exchanges, enforce transaction transparency, and develop blockchain analytics capacity. This allows the state to monitor flows and taxation while fostering legitimate innovation. Arbitrary caps, like the $100,000 limit, address symptoms rather than real challenges and undermine a system capable of generating revenue, jobs, and stronger reserves.
Pakistan’s crypto potential is immense, driven by a large, young, and skilled population of freelancers, developers, and entrepreneurs. With smart regulation, the country could emerge as a South Asian hub, attracting investment and integrating into the global digital economy.
Overly rigid rules, high costs, and divergence from international best practices risk stifling this potential. Excessive restrictions would push entrepreneurs abroad, erode tax revenue and jobs, deter investors, and concentrate the market among a few large players, undermining competition and innovation.
A comprehensive regulatory framework is critical to attract foreign investment, safeguard consumers, and integrate crypto into the formal financial system. Asset outflows should be controlled through secure, regulated, and efficient domestic channels rather than through outright bans or arbitrary caps.
Tax evasion can be curtailed by enforcing reporting requirements and leveraging blockchain’s transparency instead of pushing transactions into untraceable peer-to-peer markets. Revenue generation should rely on taxation of trading profits and services, rather than driving the ecosystem underground. Aligning regulations with FATF guidelines and international standards would enhance cross-border cooperation, prevent blacklisting, and strengthen credibility in the global financial system.
Pakistan’s experiment with banning crypto has already failed, and the potential gains by properly regulating it are too large to ignore, financial inclusion for millions, billions saved in remittance costs, new sources of tax revenue, a hedge against currency volatility, opportunities for youth, and a place on the map of global innovation. What is needed is not fear or half-measures but a confident and pragmatic embrace of regulation.
The policy debate must move beyond myths about drying reserves and focus instead on facts, frameworks, and international best practice. The opportunity is immense, but so too are the risks of getting it wrong. Pakistan has already taken the first step. It now needs the courage and the expertise to take the next one.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima & Ikram, 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. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions