Crypto regulation: how are Pakistan, India and US dealing with it?

Highly volatile. Somewhat complex. Has the ability to turn ordinary people into millionaires and millionaires into ordinary people. Criticized by the old guard and feverishly sought by the new.

That's cryptocurrency for you.

When it first emerged, governments around the world reacted the same way — with caution and uncertainty — mainly because of its untraceability. However, as it's become wildly popular over the years, governments have become more open to becoming crypto-friendly. In fact, US President-elect Donald Trump vowed to make America the "crypto capital of the plant" during his election campaign.

But the question arises, where do countries stand when it comes to regulating cryptocurrency? Nukta looks at three — Pakistan, India and the United States.

Crypto's popularity

According to Chainalysis, a blockchain data platform providing services in cryptocurrency investigation and compliance solutions globally, Pakistan ranks 9th in the Global Crypto Adoption Index 2024 due to a high level of activity on local crypto exchanges, with merchant services, and in decentralized finance (DeFi). India ranked 1^st while the United States ranked 4^th.

There are around 5,000 different cryptocurrencies in circulation, with Bitcoin (BTC) and Ethereum (ETH) being the most popular. Other famous ones include Litecoin, Dogecoin, Tether, and Cardano.

Since Bitcoin's inception in 2009, the number of cryptocurrencies has expanded dramatically. Bitcoin is basically digital money designed to be a store of value. It is primarily used for value transfer (transfer method) and investment (storage of value), but scalability concerns, high transaction fees during peak demand, and energy consumption make it difficult to use for routine transactions when compared to standard payment systems.

Bitcoin hit a record high of $100,000 just hours after President-elect Trump appointed Paul Atkins, who is pro-crypto, to lead the US Securities and Exchange Commission. The move bolstered confidence in Bitcoin and the broader cryptocurrency market as it surged past $3 trillion.

With its inherent volatility and capped supply of 21 million coins, Bitcoin's value is driven by scarcity. Factors such as market sentiment, regulatory shifts, or major financial moves by large investors can cause prices to skyrocket or plunge within hours.

In terms of revenue generation from the industry, the United States leads the pack with the highest revenue, of $9.8 billion in 2024.

Country policies on crypto

1. Pakistan

Cryptocurrency adoption in Pakistan has been expanding rapidly. The country ranked 9^th on the Global Crypto Adoption Index, trailing behind India (1st), Indonesia (3rd), Vietnam (5th), Philippines (8th) in Central & Southern Asia and Oceania (CSAO), and United States (4^th) in North America.

With its main office located on Cayman Island, Binance is the largest utilized by investors from Pakistan. Of Pakistani cryptocurrency investors, about 67% have used centralized services, while just 33% have used decentralized finances (DeFi). In contrast, 59% of the Indian market is reliant on DeFi.

Although cryptocurrency is already illegal in Pakistan, the Financial Action Task Force (FATF) — a global watchdog on money laundering — has urged the government to tighten regulations on regarding its trade.

This is because despite the announcement of a ban on cryptocurrency in 2023, 33% of Pakistanis continued to utilize it as a hedge fund against the declining value of the Pakistani rupee, according to KuCoin's report "Into the Cryptoverse: Understanding Pakistani Crypto Investors 2023".

Pakistani retailers, in particular, are turning their incomes into stablecoins as a hedge against political and economic unrest, which have become the most practical way to access the US dollar because import restrictions make it difficult to obtain actual dollars.

The user penetration rate in Pakistan, which indicates the percentage of the population using cryptocurrencies, reached 11% in 2024, while it was below 1% before 2020.

Pakistan has not formally recognized Bitcoin as a legal tender or currency. The State Bank of Pakistan (SBP) issued a circular in 2018 that banned financial institutions from providing services related to cryptocurrencies, including Bitcoin.

However, this ban has not completely stopped the usage of Bitcoin, and the crypto market operates in a grey zone (restricted area).

In 2021, the government of Pakistan announced its intention to regulate cryptocurrency. However, due to concerns over money laundering, terrorism financing, and the lack of sufficient legal frameworks, an official framework has not yet materialized.

Rough estimates by stakeholders suggest the annual trading volume of these digital assets in the country is somewhere between $18 billion to $25 billion.

2. India

In India, the coin is possibly outlawed and not considered legal tender. However, like Pakistan, it is traded in a grey area.

Since 2018, India has adopted a harsh stance on cryptocurrencies, with its central bank issuing a ban on cryptocurrency transactions — a move that was later reversed by the Supreme Court in 2020. However, no clear rules have emerged since.

In December 2023, its Financial Intelligence Unit (FIU) issued showcause notices to nine offshore cryptocurrency exchanges for failing to comply with local regulations.

On the other hand, according to India's union budget, income from Bitcoin transactions is taxed at a flat 30% rate, with an extra 1% Tax Deducted at Source (TDS) on transactions above INR 50,000 per year.

Crypto assets have also been subject to the Prevention of Money Laundering Act (PMLA) since March 2023, regulated by FIU. This means that exchanges and crypto service providers must adhere to anti-money laundering regulations, such as Know Your Customer (KYC) requirements.

In order to control the market by outlawing private cryptocurrencies and laying the groundwork for a central bank digital currency (CBDC) issued by the Reserve Bank of India (RBI), the Cryptocurrency and Regulation of Official Digital Currency Bill was introduced in 2021.

One of the main recommendations was to limit private digital currencies in order to reduce hazards such as fraud and money laundering. Additionally, the bill suggests creating a CBDC to improve financial inclusion and modernize payments.

Moreover, regulating adherence to crypto-related laws will be the responsibility of the proposed Digital Currency Board of India (DCBI).

3. The US

Different US states have different laws, resulting in an intricate regulatory system. Despite not being legal cash, cryptocurrency is regarded as property and a commodity.

Although the US federal government has not enacted complete legislation pertaining to cryptocurrencies, regulatory bodies such as the Internal Revenue Service, Commodity Futures Trading Commission, and Securities and Exchange Commission have set up guidelines for cryptocurrency use, trading, and taxes.

However, problems such as complicated taxes and inconsistent laws prevail.

Despite these obstacles, the US continues to be a global center for Bitcoin use and innovation.