It Takes Two to Crypto

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Although recent remarks in the Senate standing committee on finance suggest that the government is working towards banning the use of cryptocurrencies in Pakistan, I have argued that the government first needs to offer a sane and reasonable mainstream economy before thinking of banning anything. Having produced a body of research work on the subject, including an upcoming analysis of global cryptocurrency regulation, I see merits in making cryptocurrency illegal, but the a priori requirement is that the mainstream economy must work well and work for all. For example, China has banned all major cryptocurrencies, but then it also has robust industrial and service sectors, and then it is also exploring Central Bank Digital Currencies (CBDCs) as a contemporary alternative.

Here in Pakistan, while remarks by officials suggest that cryptocurrencies may be on the way to prohibition, new survey data also suggests that the public, particularly the digitally literate and comparatively young, agree with my contention, and are resorting to cryptocurrencies as a conduit to shield themselves from the economic havoc that has occurred under the current government. A survey of n=500 “cryptocurrency users” (who had used or invested in cryptocurrency in the past 6 months) in Pakistan was conducted in the recent past by KuCoin, a specialist cryptocurrency exchange. Its findings shed some useful light on the patterns of cryptocurrency investment in Pakistan that should give pause to the blanket-ban culture that has stifled the country for far too long and in far too many areas.

According to KuCoin’s survey data, 80% of those who own cryptocurrencies in Pakistan would be in Gen Y or Gen Z (young generational cohorts), which is the general case overseas as well. While two-thirds of crypto-owners are male, it is perhaps even more surprising that 33% of cryptocurrency owners are female, given that cryptocurrency usage around the world is characterized by gender imbalance. From a socioeconomic perspective, many would be characterized as lower-middle class, with two-thirds having an annual household income below 50 lakh rupees. This is encouraging on the one hand, because it suggests some economic equalization through digital instruments, but it is also discouraging that lower-middle class youth turn to crypto because of a highly stratified and unequal economy in terms of prospects and opportunities. Meanwhile, nearly 10% are from households with incomes ranging in Rs. 1-2 crores, and another 10% are from households with more than Rs. 2 crore annual household income, which indicates that the interest in multiplying existing economic avenues among the privileged strata also persist.

The adoption rates in the survey data are also noteworthy, with 30% having less than 3 months experience and nearly two-thirds overall having less than one year’s experience with crypto. This is but another indication of how much the economy has deteriorated over the past year, with the youth seeking cryptocurrency alternatives as a desperate hedge against skyrocketing inflation and rapidly depreciating rupees. The uptake has been rapid, since only 15% of owners have more than two or more years of cryptocurrency ownership experience. For most investors in the Gen Z (youngest category), the investments have amounted to Rs.30,000 or less (nearly as little as US$ 100 now), which is suggestive of both their meager initial capital, as well as their risk profile.

When surveyed on perceptions about cryptocurrencies, nearly 70% of owners in Pakistan believe that it is part of the future. This may be attributable to technological proclivity as much as to grim prognostications of the mainstream economy, but it certainly lies in contradistinction to the comments being made by officials in standing committees who seek to have cryptocurrencies banned. This is particularly true when seeing that nearly 45% of cryptocurrency users view the instruments as part of long-term wealth creation rather than speculation. Meanwhile 49% of overall respondents see cryptocurrencies as a more convenient way of transferring funds without borders, which is a stark verdict on the immensely restrictive levels of controls that the government has imposed on the flows of capital.

Furthermore, at least 33% of overall respondents specifically and explicitly see cryptocurrencies as a hedge against depreciation of the currency. Meanwhile, less than 15% of respondents see their cryptocurrency ownership as “fun,” which is a theme deeply explored in my most-recent edited volume on retail investors and financial markets. The usages of cryptocurrencies are diverse in Pakistan, ranging from accumulating digital collectibles (20% do so), receiving payments and salaries (10% do so), money transfers (nearly 30% do so), and trading (45% do so), among others. This reflects a growing degree of sophistication and a diversity of usage requirements in Pakistan, along with the looming instability at the macroeconomic level.

These findings echo earlier work by Chainanalysis on global cryptocurrency usage, which listed Pakistan as the 6th largest in terms of cryptocurrency user base in the world. This is a stark representation of the size of Pakistanis in the field, as well as a much more reflective proportion of participation relative to Pakistan’s demographic weight. Pakistan is the 5th or 6th (depending on the new census) country in the world by population, but with the recent economic slump it is not even among the top 40 countries in terms of the size of the economy (in nominal GDP terms). Yet it is 6th in the world in terms of cryptocurrency usage, far more indicative of its economic potential.

Sadly, it is also indicative of how little of the potential of the mainstream economy has been achieved thus far. With the current economic conditions persisting, of rampant inflation and devaluation, why would the youth not turn to alternatives such as cryptocurrencies? The tenets that underpin the ideological element of cryptocurrencies (cryptoanarchism), all resonate with the misgovernance of the economy here: an unreliable state machinery, erratic policy environment, a weak and short-sighted monetary authority, inflationary biases, rigid governmental controls on the economy, and a lack of economic freedom. Cryptoanarchism portends a decentralized, semi-anonymized, egalitarian, and digital ethos of economic libertarianism that recognizes and works against these defects.

Officials may continue their pronouncements about banning a cryptocurrency, but they have scant little to offer in its stead. It takes two to tango, as the saying goes, and it takes two to crypto: a poor mainstream economy, and a promising albeit risky alternative crypto-digital economy.

Dr. Usman W. Chohan is Advisor (Economic Affairs and National Development) at the Centre for Aerospace & Security Studies, Islamabad, Pakistan. He can be reached at

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