Pakistan’s Crypto U-Turn: From Restriction to Ambition
Samuel AYODEJI5 min read·Just now--
Why Pakistan isn’t simply legalizing crypto – but bringing it under control
For years, Pakistan’s position on crypto sat in an uncomfortable place.
It wasn’t clearly illegal.
But it wasn’t supported either.
Users could hold digital assets, yet banks refused to touch them. Regulators warned against them, while enforcement agencies acted against participants. The system existed – but outside the system.
That contradiction defined Pakistan’s crypto landscape for nearly a decade.
Today, that is beginning to change.
From Restriction Without Clarity (2018 – 2024)
Pakistan’s regulatory stance was shaped largely by a single move.
On April 6, 2018, the State Bank of Pakistan (SBP) issued BPRD Circular No. 03, directing banks, financial institutions, and payment providers to cease all dealings in virtual currencies. This effectively cut crypto off from the formal financial system.
The implications were immediate:
• Banks could not process crypto-related transactions
• Customers were denied access to exchanges
• Institutions were required to report crypto activity as suspicious
However, this did not amount to a statutory ban.
Crypto ownership by individuals was never expressly criminalized by legislation. Instead, what emerged was a system of regulatory exclusion – where crypto existed, but without institutional support.
Legal Ambiguity and Enforcement Tension
This ambiguity was tested in the courts.
In Waqar Zaka v. Federation of Pakistan (2020), the State Bank clarified before the Sindh High Court that it had not declared cryptocurrency illegal, but had only restricted its regulated entities from engaging with it.
The court, in turn, expressed concern over enforcement practices, particularly actions by the Federal Investigation Agency (FIA) against crypto users.
Despite the absence of a clear statutory prohibition, enforcement agencies continued to rely on broader laws – such as anti-money laundering and cybercrime provisions – to act against traders and platforms.
At one point, the FIA even proposed blocking over 1,600 crypto-related websites following fraud investigations.
The result was a fragmented system:
- Legally uncertain
- Operationally restricted
- Actively enforced
Meanwhile, market activity did not disappear – it moved.
Crypto trading in Pakistan continued largely through peer-to-peer (P2P) channels and informal networks, operating outside regulatory visibility.
The Shift Toward Regulation (2025 – 2026)
By 2025, this model was becoming unsustainable.
Rising retail adoption – reportedly exceeding $20 billion in holdings – combined with global regulatory developments, forced a policy rethink.
In July 2025, the government introduced the Virtual Assets Ordinance (No. VII of 2025), establishing the Pakistan Virtual Assets Regulatory Authority (PVARA).
This marked a clear shift:
from restricting crypto activity → to regulating it.
The transition was formalized with the Virtual Assets Act of 2026, enacted on March 4.
The Current Framework
Under the new regime:
• PVARA serves as the primary regulator, responsible for licensing, supervising, and overseeing virtual asset service providers (VASPs).
• Licensing is mandatory for exchanges, custodians, and wallet providers operating in Pakistan.
• The authority is tasked with enforcing AML/CFT standards and sanctions compliance.
A critical development followed on April 14, 2026:
The State Bank of Pakistan lifted its earlier restriction, allowing banks to provide services to licensed crypto firms.
This effectively reconnects crypto to the formal financial system – under regulated conditions.
What About Classification?
Pakistan’s framework is still evolving, but one thing is clear:
The regulatory focus is not primarily on defining crypto assets as securities, commodities, or currencies.
Instead, it centers on:
regulating the activities and entities operating around them
This aligns with a broader global trend – shifting attention from the asset itself to the intermediaries and risks within the ecosystem.
What Has Really Changed?
Pakistan has not simply “legalized crypto.”
It has transitioned from:
Informal restriction without clarity
to
Formal regulation with oversight
This brings several implications.
Key Implications
1. From Shadow Markets to Visibility Previously, activity thrived in informal P2P networks. Now, licensing requirements pull that activity into regulatory visibility.
2. Banking Reintegration
Allowing banks to service licensed firms reduces systemic risk – but increases compliance and surveillance.
3. Shift in Enforcement Strategy
The system moves from indirect enforcement (raids, arrests) to structured supervision and licensing.
4. Higher Barriers to Entry
While regulation improves market confidence, it may also exclude smaller or informal participants.
5. Cross-Border Impact
Foreign exchanges targeting Pakistani users may now face licensing and compliance obligations, extending regulatory reach.
What This Means in Practice
For retail users, the shift changes the nature of participation.
Access may become easier – through regulated platforms, banking support, and clearer rules – but it also becomes more structured. Identity verification, transaction monitoring, and platform restrictions mean users are no longer operating in an open, permissionless environment, but within a defined regulatory perimeter.
For informal markets, the impact is more disruptive.
A large portion of Pakistan’s crypto activity developed through peer-to-peer networks and unregulated channels. As licensing requirements take effect, these systems face a choice:
either formalize and comply, or continue operating outside the law with increased enforcement risk.
In this sense, regulation does not eliminate informal markets – it pressures them toward visibility or marginalization.
This leads to most important question:
is regulation protecting participants, or controlling the system?
The answer is both.
On one hand, licensing, disclosure obligations, and institutional oversight introduce safeguards that were previously absent – reducing fraud, improving accountability, and creating clearer avenues for redress.
On the other hand, regulation reshapes the core premise of crypto itself.
What began as a system designed to operate without centralized control is gradually being reabsorbed into frameworks defined by it. Access becomes conditional, participation becomes monitored, and the boundaries of the system are no longer set by code alone – but by law.
Conclusion
For years, Pakistan’s crypto market operated in a paradox – active, but unsupported; legal in practice, but restricted in structure.
That phase is ending.
For users, it means moving from open participation to regulated access.
For markets, it means transitioning from informal networks to supervised systems.
What is emerging is not a free market, but a regulated one.
And the real test going forward is going to be whether a system that grew outside regulation can fully adapt to operating within it.
