KARACHI: Bahrain-based Rain Financial, a cryptocurrency trading platform, is convincing local regulators to issue a legal framework to formalize crypto trading in Pakistan.
In a recent interview with Dawn, Rain Financial Country Managing Director Zeeshan Ahmed said that crypto asset trading – digital currencies in which transactions are verified and recorded by a decentralized system – currently exists in a regulatory “no man’s land”.
“No law makes crypto illegal. Do authorities frown on crypto? Yes. But making a statement is one thing and translating it into law is another,” he said.
Former central bank governor, Dr. Reza Baqir, said in March that the risks of using cryptocurrencies outweigh the benefits. Earlier, the central bank issued a formal notice advising the general public to exercise caution and refrain from trading cryptocurrencies.
“Negotiations are underway. These are high-impact decisions that involve a lot of ideas and proposals,” said Mr Ahmed, expressing hope that authorities will realize the benefits of formalizing an activity that is already taking place outside the regulatory framework.
According to data platform Chainalysis website, Pakistanis made more than $604 million in crypto trading profits in 2021. Pakistan is also among the top-ranked countries in the Global Crypto Adoption Index. This is despite the fact that the central bank does not recognize cryptocurrencies as legal tender and as such has not authorized exchanges to facilitate their trading.
Still, Pakistanis trade digital coins on crypto exchanges like Binance in peer-to-peer transactions. Simply put, buyers and sellers agree to trade coins on the Exchange app, which results in the same assets being deposited into an escrow/frozen account. The buyer then transfers money to the seller within a short period of time and provides the proof of payment to the trading platform to take possession of it. Alternatively, one can use a hundi/hawala channel to buy or sell coins on a crypto exchange. The unregulated structure of trading means that the government is not taxed on capital gains accrued by investors.
“We believe in regularized and licensed platforms. When we want to enter a market, we first engage the regulator and show them the added value and benefits (of cryptocurrencies). Unregulated markets such as Pakistan face capital flight and risks to individuals and institutions,” said Mr Ahmed.
Rain Financial was included in the sandbox of the Bahrain Central Bank as a crypto asset company in 2017. The Federal Monetary Authority issued a crypto policy framework in 2018 and the company received its license in 2019.
Ahmed said that the exchange is a major crypto trading platform in the markets it already operates in. The estimated cryptocurrency trading volume in 2021 was nearly $100 billion. “Our share was $2 billion. Currently we are a regional player and we are on our way to become a global player,” he said.
Crypto enthusiasts tout digital currencies as a reliable medium of exchange, a store of value, a hedge against inflation, and a safe investment in the event of disaster – attributes that are conspicuously missing from the more than 10,000 cryptocurrencies currently in existence.
Rain Financial’s bid to enter the Pakistani market could not have come at a less opportune time. No less than $2 trillion has been wiped out of the combined cryptocurrency market cap in the past six months. The crash is so severe that China’s blockchain-based service network, a government-linked initiative to promote commercial adoption of blockchain technology, has called cryptocurrencies the largest Ponzi scheme in the world.
Mr Ahmed said temporary setbacks should not be interpreted as the final verdict on history. The ongoing evolution of cryptocurrencies, he says, is as important an event as the industrial revolution.
“This volatility may seem excessive in the short term, but it is not. Global (crypto) adoption (speed) is only 7%,” he said, pointing out that long-term volatility will decrease.
Ahmed expects Pakistan to be a high volume, low transaction volume market for Rain Financial once regulators allow formal cryptocurrency trading. About 2 million Pakistanis have downloaded the crypto exchange apps so far. The number is likely to quadruple once authorities give legal cover to cryptocurrencies, he said.
“Within a year (after the exchanges are formalized), I expect 70-80 million Pakistanis to trade $7-10 each in crypto assets per month,” he said.
Posted in Dawn, 13 July 2022