Differing Crypto Dynamics & Bets in South Asia

It is not just politics that India and Pakistan differ on; even in the crypto space, the views of both countries are diverging significantly.

In a clear case of crypto adoption, Pakistan recently signed a deal with Binance to promote digital asset growth and regulatory development in the country.

On the other hand, in India, crypto is not legal tender, with the Reserve Bank of India remaining steadfast that cryptos do not have an intrinsic value and threaten financial stability.

While India has hailed the underlying technology - blockchain, several times as the next important tech innovation, the country has discouraged crypto investment.

Pakistan's Embrace

Until last year, US President Trump was not in favour of cryptos.

But since his U-turn and pledge to make the US the crypto hub of the world, Pakistan has upped its bets on the sector.

Earlier this year, Pakistan established a crypto council and appointed Binance's CZ as the advisor.

Last week, the business issued an important announcement on a regulatory breakthrough in Pakistan, following strategic talks between Binance's upper management and Pakistani government authorities.

The announcement said, working closely with key lawmakers, Binance Co-CEO Richard Teng is demonstrating the company's commitment to creating a safe and regulated space for digital assets in the country.

Binance said it has made a noteworthy advancement in securing comprehensive licensing and establishing a local presence in Pakistan by acquiring an AML registration in accordance with PVARA’s framework.

The company said it has the potential to provide cross-border services that comply with AML regulations through this structured method, which is in harmony with Pakistan's regulatory framework.

This will also enable Binance to get ready for complete certification as a Virtual Asset Service Provider.

Why Tokenization?

Pakistan's deal with the crypto firm is to allow the country to explore tokenizing its state assets up to $2 billion to raise funds.

One of the top reasons is that external funding is drying up for the cash-strapped country.

The country has not been able to divest its state assets previously, as large investors seem to be worried about operations and profits in Pakistan.

A notable exodus of prominent multinational corporations from Pakistan has been underway, with companies such as Microsoft, Shell, Pfizer, TotalEnergies, P&G, Uber, and Yamaha leading the way.

This trend is fueled by considerable economic instability, policy unpredictability, currency devaluation, regulatory challenges, and elevated operational expenses.

These factors collectively indicate a profound crisis in investor confidence, rendering the business environment in the country increasingly unsustainable.

The recent departures, although partly linked to global corporate restructuring, have sparked considerable apprehension regarding the overall business environment in the country.

Pakistan's efforts to divest its national airline, Pakistan International Airlines (PIA), have consistently fallen short due to inadequate bids (such as a solitary $36M proposal well below the $300M+ goal), apprehensions from potential investors regarding substantial debt, opposition from unions and political factions, and conflicts over governmental oversight.

This comes despite pressure from the IMF to privatise this unprofitable entity.

A new bidding process is scheduled for early 2026 with adjusted terms - including the offer of a 75% stake, aimed at enticing buyers following previous setbacks, yet the likelihood of success remains ambiguous.

So, the country has partnered with Binance to tokenize its assets, which Pakistan sees as a way forward by attracting smaller domestic and international investors.

India's Stance Still Unclear

India allows crypto to be held, traded and invested in, but it is banned as legal tender.

The government is still hesitant about digital assets even as the country tops the charts in crypto adoption.

According to Chainanalysis, India and the United States lead in global crypto adoption.

But last week, RBI Deputy Governor T. Rabi Sankar said that widely recognized crypto assets fail to meet essential monetary functions, and as a result, they cannot be considered currency in any significant legal or economic context.

The deputy governor said that cryptocurrency is just a code and not a currency.

Sankar also cautioned that stablecoins present considerable macro-financial challenges, such as currency substitution and a dilution of monetary policy effectiveness.

He contended that they are missing critical characteristics of contemporary currency, including fiat recognition and singularity, and could potentially jeopardise India's financial framework.

Sankar said, "Beyond the facilitation of illicit payments and circumvention of capital measures, stablecoins raise significant concerns for monetary stability, fiscal policy, banking intermediation, and systemic resilience."

"Stablecoins do not serve any purpose that fiat money cannot," he added.

When it comes to regulating cryptocurrency, India has gone in a different direction than other big regional and global economies like the EU and Japan. Some worry that systemic risks could increase if these digital assets are integrated into the conventional financial structure.

Following the passing of a regulatory framework for dollar-pegged cryptocurrency tokens in the US, stablecoins have surged in global recognition, enhancing their appeal and elevating the total market capitalization of these tokens beyond $300 billion.

However, the RBI deputy said that stablecoins have yet to demonstrate the advantages that their supporters assert and are currently less favorable than traditional currency, he noted, emphasizing that India will maintain a careful stance towards these innovations.

More importantly, the country also poses significant operational hurdles for crypto exchanges.

This is characterised by a 30% flat tax on crypto gains, a ban on offsetting losses, and a one percent transaction fee that has dampened trading volumes.

The Indian government is yet to review and bring a crypto bill, which has been pending for the last few years.

Coinbase recently announced that after a two-year absence due to regulatory disagreements over payment infrastructure, the crypto exchange has returned to the Indian market and is once again onboarding users.

During India Blockchain Week, Asia-Pacific head John O'Loghlen explained that the exchange is currently accepting new registrations, as well as supporting crypto-to-crypto trading. He also revealed plans to reinstate converting rupees into crypto services next year, depending on regulatory approval.

Whether Coinbase's second innings turn favourable remains to be seen.

The Indian government's uncertainty remains despite crypto adoption widening beyond metros into tier-2 and tier-3 cities this year.

Crypto activity is increasingly influenced by younger demographics, showcasing a significant increase in female involvement, which underscores a varied and geographically spread landscape.

Still, authorities have turned a blind eye, with the RBI focussing on a digital rupee instead.

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