While the global craze surrounding crypto assets seems to have taken a break amid the bearish spell (to put it mildly), it wasn’t long ago these currencies were churning out unbelievable returns. In fact, Bitcoin doubled to over $58,000 by April 10 from its early January values, making it one of the most impressive bull runs. Of course, it was still no match for the “25 din me paisa double” Lakshmi Chit Fund, but not too bad either, right? But like Raju, Sham and Babu Bhaiyya, the fortunes of many investors turned sour as the selling started.

Many among those were Pakistanis as well, thanks to the growing popularity of cryptocurrencies among people of all walks of life. Some even suggest that the number of crypto investors is already larger than those in the local bourse though the figures for that are scarce. The most common name in this respect seems to be Binance, which claims to be the biggest global crypto exchange and is headquartered in the Cayman Islands.

Though it’s not possible to find out the exact number of Pakistanis actively using Binance, we can take the traffic going to the website from the country as a proxy. As per Semrush, a top marketing intelligence tool, that number stood at 49,108 visits during July so far, which exceeds the June value of 44,868. That accounts for even less than 0.1 per cent of Binance’s total traffic. Now it’s entirely possible that more Pakistanis are using the platform through the mobile application, for which the data would be hard to come by.

Based on the web numbers, the total market may not appear particularly large but still big enough for Binance to start hiring for local representatives as the company’s job posts for Community Manager and Growth Manager have been doing the rounds on LinkedIn and other listing websites. Both these roles are aimed at creating awareness about the brand and cryptocurrencies more generally.

Chainalysis estimates that the country received about $1.5 billion in cryptocurrency during 2019-20

Another major exchange, Coinbase, is also popular among Pakistanis even though they are not able to use it for trading. The total organic traffic going to the website from the country was 65,632 in July, up from 58,844 in June. Admittedly, website visits are a very crude metric to look at the crypto penetration but this very indicator also happens to be part of the widely used Global Cryptocurrency Adoption Index which gave Pakistan the value of 0.272 out of 1, ranking 15th across the world. Published by Chainalysis, a US-based data and software provider, the report also estimates that Pakistan received a little less than $1.5 billion in cryptocurrency during 2019-20.

A good way to gauge interest in crypto assets is to turn to Waqar Zaka, the VJ-turned blockchain guru who has been the self-proclaimed poster boy of the industry and has even suggested paying national debt with bitcoin. His private group on Facebook, which boasts more than 30,000 members, is fairly popular among aspiring investors for investment advice and discussions. Another one by the name of Pakistan’s CryptoCurrency Community with over 50,000 people is also quite active and connects buyers and sellers.

If we take an anecdotal approach, most investors seem to be using Binance, followed by Localbitcoins.com. But as it stands today, peer-to-peer (P2P) transfer is your only recourse. So if you want to buy, say, Rs10,000 worth of ADA, first get that amount converted to bitcoin or some other approved currency from a party who wants to liquidate their position. The actual transaction will take place through your banking app/website, with the chat occurring over the trading portal, and the exact rate will vary. Here, only the maker will be charged a certain fee depending on the fiat while the interbank fund transfer dues can apply to the taker. After that, you can convert your holdings into the desired crypto and again pay a transaction surcharge that can go up to 0.1pc.

In other words, the features available are still quite limited and the process far from efficient, not to mention the costs associated with each such trade, which somewhat dents the incentive of free and frictionless markets as often promised by blockchain evangelists.

Now trading is just one aspect of the entire buzz around crypto, which too has taken off more since the availability of new international platforms in Pakistani. The first end of the chain is still mining which has been all the hype among unemployed boys for quite a few years. It recently also caught the attention of the Khyber Pakhtunkhwa government which seeks to set up mining farms and has brought in Waqar Zaka as an adviser. But again, given how dispersed all this activity generally is, it’s next to impossible to understand the existing scale.

So far, the entire discussion has been about Pakistanis investing in international coins or mining those. What about the exclusively local efforts? There’s not a lot going on, but some sporadic activity can be observed, even if not really successful. For example, Urdubit, one of the earliest domestic bitcoin trading platforms, shut down not long after the State Bank released its circular about virtual digital currencies in 2018.

There is also PakCoin, a home-grown cryptocurrency with market capitalisation hovering around $438,000, which aims to replace cash for routine transactions. Their website shows a list of merchants ranging from gems to the schooling industry who apparently use it as a medium of exchange already while the white paper talks about the usual features such as security, low transaction costs etc.

This crypto is complemented by a number of related players, such as Mubadil, an exchange by the PakCoin team itself where users can make P2P transfers using e-banking channels. Then we have Pakskaters, a platform for PakCoin staking [the process of actively participating in transaction validation (similar to mining) on a proof-of-stake blockchain]. Meanwhile, Adaigi has a wallet that allows businesses to accept PakCoin payments and convert them into fiat money.

Obviously, the growth of domestic players and ecosystem is a function of the market here as well as the regulatory regime, which until now had stayed behind the curve. However, the wheels seem to be turning now, as evidenced by the Securities and Exchange Commission’s position paper on the topic. It attempts to define digital tokens and discusses a number of trading options, including initial public offering, and makes for an interesting read from a conceptual point of view. Whether anything from that will translate into something substantial in the near future is the real question, which at least I don’t have the answer to.

Published in Dawn, The Business and Finance Weekly, July 26th, 2021