The rapid evolution of cryptocurrency has significantly impacted global economies, offered new financial opportunities, and reshaped traditional banking systems.
The increasing interest of individuals, businesses, and investors in digital currencies has made it imperative for governments to devise clear regulatory frameworks to ensure financial stability and security.
The ability of cryptocurrencies to facilitate cross-border transactions, enable financial inclusion, and create new investment avenues has led many countries to adopt policies that integrate digital assets into their economies.
The growing adoption of blockchain-based financial systems highlights the necessity of a structured legal framework that ensures transparency, security, and regulatory compliance.
The emergence of digital currencies has presented both opportunities and challenges, making it essential for governments to find a balance between regulation and innovation. The people of Pakistan have shown increasing interest in cryptocurrency, with many engaging in digital asset trading, investing in blockchain projects, and exploring decentralized financial solutions.
The growing crypto community in Pakistan has driven discussions at the governmental level regarding the potential benefits and risks associated with legalizing cryptocurrency. The government of Pakistan has historically maintained a cautious stance on digital currencies, with the State Bank of Pakistan (SBP) banning all forms of cryptocurrency transactions.
The country’s financial regulators have repeatedly warned against the use of virtual currencies, citing concerns related to money laundering, terrorist financing, and lack of consumer protection. The shift in perspective, however, has led the government to reconsider its position, acknowledging the global trend toward digital finance.
The finance ministry of Pakistan recently established a National Crypto Council, a significant move aimed at aligning the country with emerging global trends in digital finance. The government has appointed a chief adviser on cryptocurrency to facilitate the process of integrating blockchain technologies and digital assets into Pakistan’s financial ecosystem. The appointment of a strategic adviser highlights the country’s intent to develop a robust regulatory framework for cryptocurrency.
The recent meeting between the finance minister and foreign experts, including key figures from the global digital asset community, further emphasizes Pakistan’s commitment to exploring cryptocurrency adoption.
The government’s recognition of digital assets as a potential driver for economic growth and innovation indicates a shift toward a more progressive regulatory stance. The focus on ensuring financial security, digital transformation, and economic sustainability through blockchain-based technologies demonstrates the country’s willingness to embrace the future of finance.
The existing legal structure in Pakistan does not currently recognize cryptocurrencies as a legitimate asset class or medium of exchange. Several laws govern financial activities, yet none explicitly accommodates digital currencies.
The State Bank of Pakistan Act, of 1956, governs currency regulation, and the definition of legal tender does not cover cryptocurrencies. Therefore, amendments should define cryptocurrencies as digital assets and establish SBP’s role in their regulation.
The Foreign Exchange Regulation Act, 1947, involves cross-border transfers, necessitating clear rules regarding remittances and forex, while a revised framework should address the limits and reporting requirements for crypto transactions.
The Anti-Money Laundering Act, 2010, must extend AML and KYC compliance to crypto exchanges and wallet providers, given that cryptocurrencies are often associated with illicit activities due to their pseudonymous nature.
The Securities and Exchange Commission of Pakistan Act, 1997, needs amendments to define which digital assets fall under SECP’s jurisdiction and regulate Initial Coin Offers (ICOs) accordingly.
The Income Tax Ordinance, 2001, currently lacks provisions for taxing crypto profits, which should be revised to include tax obligations for crypto transactions, such as capital gains and mining revenue.
The Electronic Transactions Ordinance, 2002, should be updated to validate digital transactions involving cryptocurrencies and provide legal recognition for smart contracts and blockchain-based transactions.
The absence of clear definitions and regulations has resulted in several critical gaps, including legal ambiguity, consumer protection deficiencies, tax evasion risks, AML and KYC loopholes, and limited innovation. A comprehensive legal review must be conducted by a task force comprising SBP, SECP, FBR, FIA, and legal experts with practical knowledge of crypto regulations and operations to analyze existing laws and identify conflicting areas and regulatory gaps.
Cryptocurrencies should be categorized as digital assets, securities, commodities, or a new asset class, and their usage should be clearly defined. Licensing and registration requirements should be introduced, mandating AML and KYC compliance for exchanges and wallet providers.
A taxation framework should be developed, incorporating capital gains tax and income tax on crypto transactions, with individuals and businesses required to report crypto holdings to FBR.
Consumer protection and cybersecurity measures should be enhanced through strict security protocols for exchanges, mandatory insurance for users, and a dispute resolution mechanism for crypto-related issues.
Additionally, Pakistan needs to analyze the different classifications of cryptocurrencies adopted by various countries based on their financial systems, economic objectives, and regulatory priorities.
The United States classifies crypto as commodities, securities, and property, with agencies such as the CFTC overseeing Bitcoin and Ethereum as commodities, while the SEC regulates tokens issued through ICOs. The European Union treats crypto as digital assets under the MiCA regulations, focusing on harmonization across member states. Switzerland categorizes crypto into three types, payment tokens, utility tokens, and asset tokens, allowing flexible regulations based on use cases.
Similarly, Japan recognizes cryptocurrencies as legal property but not legal tender, subjecting exchanges to strict consumer protection laws. Countries classify crypto differently based on economic priorities, regulatory philosophies, and AML and fraud risks. El Salvador treats Bitcoin as a legal tender to boost financial inclusion but now as a result of IMF conditions merchants are not obliged to accept Bitcoin, while China bans crypto to maintain financial control.
The US follows a multi-agency approach, while the EU focuses on uniform regulations; whereas countries with strict financial oversight, such as Singapore and the UK, implement strong AML frameworks before mainstream adoption.
The development of a regulatory framework in Pakistan must consider international best practices while adapting to the country’s unique economic and legal environment.
The classification of cryptocurrencies in Pakistan must ensure clarity in taxation, compliance, and investor protection. A multi-tiered approach can be followed, whereby cryptocurrencies used for payments are classified separately from those used as investment instruments. A special category for blockchain-based tokens that provide utility or function as smart contracts should also be created. This approach will prevent overregulation while maintaining financial integrity.
The role of financial institutions must also be clearly defined, and banks should be allowed to offer crypto-related services under strict oversight to integrate digital assets into the traditional financial system. Moreover, financial literacy campaigns must be launched to educate businesses and individuals on the safe use of cryptocurrencies.
A major challenge in Pakistan’s regulatory efforts is the lack of awareness and technical expertise among policymakers. Therefore, building capacity within regulatory institutions, including SBP and SECP, is necessary to ensure informed decision-making. Similarly, international cooperation with regulatory bodies such as the Financial Action Task Force (FATF) and the International Monetary Fund (IMF) can guide in structuring crypto regulations. Pakistan should adopt a phased approach by first regulating crypto businesses and then allowing gradual adoption for consumers, which can mitigate financial risks while supporting growth.
Additionally, legal amendments should not only cover financial transactions but also address cybercrime risks associated with digital assets. We must recognize that hacking, fraud, and unauthorized transactions are common threats in the crypto industry, and clear legal provisions must be developed to handle such cases. Therefore, strengthening cybersecurity policies and requiring all crypto businesses to maintain high-security standards can significantly reduce vulnerabilities.
Pakistan stands at a turning point regarding cryptocurrency regulation. By addressing legal gaps, defining a clear classification system, and aligning with the best global practices, the country can establish a robust regulatory environment.
A well-defined legal framework will not only protect consumers and ensure compliance but also position Pakistan as a leader in the emerging digital asset economy. Therefore, proactive steps taken today will shape Pakistan’s future in the global crypto market.
We must realize that implementing a progressive yet controlled regulatory framework will attract foreign investment, support technological growth, and enhance financial inclusion.
Pakistan, with meticulous planning and the implementation of structured policies, has the potential to become a regional hub for blockchain technology, thereby fostering long-term economic prosperity.
Copyright Business Recorder, 2025
The writer is a corporate lawyer based in the US with extensive expertise in financial regulations, including Virtual Asset Service Providers (VASPs), corporate governance, and global economic policies. He holds an LLM from Washington University in St. Louis and has completed the Management Development Program at the Wharton School. He has developed regulatory frameworks for North American and South American Financial Institutions and has consulted and trained bureaucrats of different regions. He can be reached at abdulrauff@hotmail.com
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