The wild world of crypto is back in action, with Bitcoin breaching $60,000 at the time of writing (till publishing, it could be way off). Like every bull run anywhere, a sea of investors are probably flocking to the asset class in the hopes of getting rich quick, many of them Pakistani. This is regardless of the fact the regulatory framework doesn’t really recognise cryptocurrencies but when has that stopped anyone? Not only do fellow countrymen are increasingly taking more interest in this space but global exchanges are also eyeing the local market as an exciting opportunity.

All of it is best reflected in the latest report of Chainalysis, a blockchain data platform. According to their 2021 Global Crypto Adoption Index, Pakistan ranked third overall with a score of 0.36, just trailing India and Vietnam. This metric in turn is composed of three parts (all weighted by purchasing power parity); on-chain value received where we stood 11th; on-chain retail value received putting us in 12th place; and peer-to-peer exchange trade volume at 8th position.

Pakistan recorded around $20 billion of cryptocurrency value received during 2020-21, growing by an eye-popping 711 per cent

This marks an improvement from 15th place and an index value of 0.272 in 2020. With a top-three position, there is a lot of Pakistan-related data to unpack in the latest edition of the report. To start with, the country recorded around $20 billion of cryptocurrency value received during 2020-21, growing by an eye-popping 711 per cent. In absolute terms, that still puts us much behind Vietnam at roughly $80bn and India at $90bn. However, a more appropriate comparison is not with bigger markets, but with our own equities. Over the same period, the total traded value at the PSX was Rs4.78 trillion, which translates into $29.82bn at an average exchange rate of Rs160.29, as per data from Mettis Global.

Not to forget crypto is still a pretty new phenomenon not just in Pakistan but worldwide whereas the local exchange has been around since forever. Only a third of this value came through decentralised finance platforms though compared to Vietnam’s 47pc and India’s 59pc, meaning that centralised services still reign supreme. That in turn is reflected in Chainalysis’s introductory Global DeFi Adoption Index, where we came in 23rd with a value of 0.20.

“The differences between Central and Southern Asia’s biggest markets may reflect the fact that these countries are at different stages of cryptocurrency market development. Many first look to cryptocurrency in search of quick returns on speculative trading of a variety of investments, which can be done on centralised services and conventional peer-to-peer platforms, as appears to be the predominant use case in Vietnam and Pakistan. However, in markets like India where the cryptocurrency community has grown and attracted outside investment, we see more development and usage of innovative projects like DeFi protocols,” says the report.

Most of the Pakistani cryptocurrency activity was naturally concentrated in bitcoin, at around 25pc, and Ethereum/wETH about another one-third. Over a quarter of the total was in various stablecoins while the remaining (roughly 15pc) comprised altcoins, a much bigger share compared to India or Vietnam.

In terms of value sent by transaction size, the lion’s share came from professionals ($10,000-1,000,000) at over 40pc. Large institutional ($10m+) and institutional ($1-10m) accounted for almost a combined 53pc while small and large retail made up the remaining. This apparent presence of big players in the space seems odd and definitely warrants further research.

Regardless, the interest is there which can also be gauged from traffic data. Across January-June, mean monthly visits to Binance and Coinmarketcap stood at 886,438 and 877,738, respectively according to Semrush analytics. Search trends also give a similar picture where queries for bitcoin, dogecoin and ethereum were averaging 175,500, 64,200 and 22,100 during the period in review.

Meanwhile, the biggest exchange operating in Pakistan, Binance, is stepping up its outreach efforts. Since Oct 3rd alone, they have done an ask-me-anything YouTube live and another webinar on futures, which is two more than what most local brokerages have done throughout their existence or the stock exchange itself of late. No wonder then our capital markets are still stuck in a bygone era with not even a single shared economy stock and capital flows that haven’t recovered since the 2008 crash as if we were the only country to go through that.

Published in Dawn, The Business and Finance Weekly, October 18th, 2021