Abstract:
The rapid growth of cryptocurrency markets around the world has been changing the face of financial systems; new opportunities and new challenges result. However, what concerns investors is the lack of a comprehensive regulatory framework in Pakistan, which has made the country’s cryptocurrency market a legal gray zone and thereby very risky for the investor, inhibiting the market development. Focusing on challenges it poses fraud, market manipulation, lack of institutional participation and lack of investor protection mechanisms this study discusses the regulatory void. In addition, the study investigates how the implementation of such a tailored regulatory framework can mitigate these problems while enabling innovation and the inclusion of the financial sector. This used a mixed method which uses qualitative and quantitative data to develop a total analysis of Pakistan's cryptocurrency market. Interviews and surveys of traders, regulatory officials, and international experts were conducted to collect primary data, and secondary data was extracted from global regulatory framework and case studies. The findings indicate that most trading platforms in Pakistan’s market are not regulated, exposing investors to regular frauds, such as Ponzi schemes and phishing attacks, as well as destroying trust in digital assets. The study shows the importance of a phased regulatory regime. First, the start should lay out a regulatory sandbox for controlled experimentation; second, licensing of exchanges should be implemented, and comprehensive taxation, AML/KYC compliance, and consumer protection regulations should be addressed. The research draws on lessons from global leaders like Japan, South Korea, and the European Union, to provide best practices that can be adapted to Pakistan’s socio-economic and technological context. Recommendations include the introduction of mechanisms for investor protection such as fund insurance programs, transparent dispute resolution systems as well as public awareness campaigns to educate investors about the market risks. Legal clarity and tax incentives, on the other hand, are crucial to encourage institutional participation to ensure market stability and progress. This discourse on cryptocurrency regulation in emerging markets is complemented through this study and has actionable insights as well as roadmap for policymakers in Pakistan. Proposed measures seek to build a secure and transparent, innovative cryptocurrency market which benefits investors, businesses as well as the economy. Future research will monitor the implementation of these regulations and examine the potential for integrating central bank digital currencies (CBDCs) as an additional tool required to reach a holistic digital asset framework. Finally, the study highlights that proactive and balanced regulatory policy is essential for Pakistan to exploit the potential of the cryptocurrencies as means of generating economic growth; improving inclusive financial access; and enhancing global competitiveness of national economy in digital finance arena.
