Cryptocurrencies have emerged as a transformative force in global finance, challenging traditional monetary systems and prompting governments and central banks to address their regulation. In South Asia, India and Pakistan—two nations with a fraught history of geopolitical tensions—have adopted notably cautious approaches to cryptocurrencies. These policies are shaped by concerns over financial stability, consumer protection, and illicit activities, while also being influenced by the broader context of regional instability. As India and Pakistan navigate their regulatory frameworks, the interplay between cryptocurrency policies and geopolitical tensions raises critical questions about the future of digital assets in the region.
This article provides a detailed exploration of the evolving regulatory landscape for cryptocurrencies in India and Pakistan, the impact of these regulations on the crypto market, and how ongoing tensions between the two nations might shape future policies. Through historical analysis, current developments, and forward-looking scenarios, we aim to offer readers a comprehensive understanding of this multifaceted issue.
Historical Context: Early Regulatory Actions
Both India and Pakistan have exhibited skepticism toward cryptocurrencies, with their central banks taking early steps to restrict their use.
India: The Reserve Bank of India’s (RBI) 2018 Circular
In April 2018, the Reserve Bank of India (RBI) issued a landmark circular prohibiting banks and regulated entities from dealing with cryptocurrency exchanges or providing services to individuals or businesses involved in crypto transactions. Citing risks to consumer protection, market integrity, and financial stability, the RBI effectively severed the banking lifeline for India’s crypto ecosystem. This decision triggered a significant market downturn, with Bitcoin trading at a discount on Indian exchanges—dropping to as low as ₹350,000 ($5,392) compared to its international price of $6,617.
The crypto community responded with legal challenges, and in March 2020, the Supreme Court of India overturned the RBI’s ban, deeming it unconstitutional and disproportionate. This ruling briefly revitalized the market, but the Indian government soon signaled its intent to pursue stricter measures, maintaining pressure on the crypto sector.
Pakistan: The State Bank of Pakistan’s (SBP) 2018 Prohibition
Concurrently, in April 2018, the State Bank of Pakistan (SBP) issued a similar directive, barring banks and financial institutions from engaging with cryptocurrencies. The SBP emphasized that digital currencies were not legal tender and posed risks of money laundering and terrorism financing. It also warned that transferring funds abroad via cryptocurrencies could lead to legal consequences.
Pakistan’s crypto market faced immediate hurdles, with trading pushed into informal channels like peer-to-peer networks. Unlike India, Pakistan has not seen a definitive legal reversal of the SBP’s stance, leaving the industry in a regulatory limbo.
Current Regulatory Stance: A Cautious Evolution
Despite early setbacks, the regulatory approaches of India and Pakistan have evolved, though both remain wary of decentralized digital assets.
India: Exploring a Ban and a CBDC
India’s government has flirted with a complete ban on private cryptocurrencies. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, proposed prohibiting all private cryptocurrencies while paving the way for a central bank digital currency (CBDC). Though the bill has yet to pass, it underscores a preference for state-controlled digital finance over decentralized alternatives.
RBI Governor Shaktikanta Das has been vocal about the risks, calling cryptocurrencies a “serious threat to financial stability” and questioning their intrinsic value. Meanwhile, the RBI is advancing plans for a digital rupee, viewing it as a safer alternative that preserves monetary sovereignty.
Pakistan: A Shift Toward Regulation?
Pakistan’s stance has been less definitive. The SBP’s 2018 prohibition remains in place, but there are hints of change. In October 2021, the Sindh High Court ordered the government to formulate a crypto regulatory framework within three months, suggesting a potential shift toward legalization. However, in January 2022, the SBP reportedly recommended a total ban, citing concerns over illicit financing—only to face pushback from industry stakeholders advocating for regulation over prohibition.
Pakistan’s crypto market has nonetheless thrived informally, with a 2021 FPCCI report estimating that Pakistanis held $20 billion in cryptocurrencies in 2020-21, dwarfing the nation’s foreign reserves.
Impact on the Crypto Market: Volatility and Resilience
Regulatory actions in India and Pakistan have reverberated through their crypto markets, influencing prices, trading volumes, and investor behavior.
India: A Rollercoaster Ride
The RBI’s 2018 circular caused a steep decline in trading volumes and localized price drops. Even after the Supreme Court’s 2020 ruling, uncertainty lingers, with periodic sell-offs triggered by rumors of a ban. Indian investors remain cautious, balancing the allure of crypto gains against regulatory risks.
Pakistan: Growth Amid Uncertainty
In Pakistan, the SBP’s restrictions have driven trading underground, with peer-to-peer platforms flourishing despite premiums and risks. The market’s resilience is evident in its 711% growth in crypto transactions from mid-2020 to mid-2021, earning Pakistan a third-place ranking in the Chainalysis Global Crypto Adoption Index for 2021.
Geopolitical Tensions: A Crypto Catalyst?
The India-Pakistan rivalry, particularly over Kashmir, adds a unique dimension to their crypto policies. Recent incidents, like the April 2025 Pahalgam terrorist attack, have intensified regional instability, potentially influencing financial behaviors.
Crypto as a Safe Haven
During geopolitical crises, cryptocurrencies can act as a hedge against economic uncertainty. In both nations, heightened tensions have coincided with spikes in crypto trading as individuals seek to safeguard assets from currency volatility or capital controls.
Security-Driven Regulation
India has cited national security as a rationale for tighter crypto controls, fearing their use in cross-border illicit financing—potentially involving Pakistan. Pakistan, meanwhile, faces pressure to align with global anti-money laundering standards, which could reinforce its cautious stance.
Comparative Analysis: Divergent Paths
Though India and Pakistan share concerns about cryptocurrencies, their strategies diverge.
India’s Centralized Approach
India prioritizes control, with the RBI and government favoring a ban on private cryptocurrencies and the promotion of a CBDC. This reflects a broader aim to protect the regulated financial system.
Pakistan’s Uncertainty
Pakistan’s approach oscillates between prohibition and tentative regulation, driven by market growth and judicial nudges. Its less rigid stance may reflect economic pressures and the need for innovation.
Future Outlook: What Lies Ahead?
The trajectory of crypto regulation in India and Pakistan could follow several paths:
- Total Ban: Both nations could enforce strict bans, pushing crypto underground and hindering innovation.
- Regulated Adoption: A balanced framework with KYC/AML compliance could legitimize crypto while mitigating risks.
- CBDC Dominance: Prioritizing state-backed digital currencies might sideline private cryptocurrencies.
- Regional Collaboration: Though unlikely given tensions, a joint regulatory approach could address cross-border concerns.
Conclusion: Striking a Balance
India and Pakistan stand at a crossroads in their crypto policies, balancing innovation with oversight amid geopolitical complexities. While their central banks remain wary, the growing adoption of digital assets suggests that outright bans may prove unsustainable. A nuanced regulatory framework could unlock economic potential while addressing security and stability concerns, shaping the future of finance in South Asia.
