Regulatory Challenges and Opportunities for Cryptocurrency in Pakistan’s Financial Markets

Abstract

The current research paper will analyze economical regulations and business potential the world of cryptocurrency offers in the sphere of Pakistani financial markets that are currently witnessing the global emergence of digital assets and decentralized financial solutions. Despite cryptocurrency taking root in Pakistan due to the contribution of younger people, the remittance demand, and fintech advancement, the country does not have a unified field policy. Such a gap has resulted in a state of confusion especially by the stakeholders, reduced resistance to fraud and fluctuation, and minimal state control over the illegal financial. Mixed-methods approach to research, which is based on the constructivist paradigm, has been used to research into these issues. The qualitative element was based on secondary data such as policy papers of the State Bank of Pakistan (SBP), SECP, FATF, and international case studies such as MiCA (EU) and Taxation model of India, to establish pattern themes of regulatory gaps, stakeholder interests and institutional preparedness. The quantitative part consisted of an organization survey of 100 respondents, fintech professionals, crypto investors, and policy students, subjected to a descriptive statistic, correlation test, and regression test. It was also found that the public trusts blockchain technology greatly (mean 4.1/5) and regulatory sandbox models are largely supported (mean 4.3/5) but that the trust in national institutions is low (mean 2.8/5). Strong relationships were found between trust in technology, preferences to have an innovation-friendly regulation and willingness to use cryptocurrency (p < 0.01). The qualitative analysis substantiates the lack of regulatory clarity to compromise compliance, innovation and protection of investors. The analysis comes to the conclusion that Pakistan finds itself in a crossroad that forces a strategic policy on it. To strike the right risk and opportunity balance a phased (including innovation-driven) approach to regulation could be used, beginning with inter-agency coordination and sandbox experimentation. Putting in place domestic systems in line with international systems and embracing cryptocurrency as a revolution through institutional capacity building in Pakistan, the country will not only be able to trickle down the benefits of cryptocurrency but also be in a better shape to address the vulnerabilities in the system.