Crypto Investment Guide For Pakistan: Getting Started

Investing in cryptocurrencies in Pakistan requires careful consideration of the legal and financial risks involved. While there are no laws explicitly prohibiting the use of cryptocurrencies, the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) have issued warnings about the risks associated with investing in digital currencies. In addition, the lack of clear regulations in the country means that there is a chance the government could decide to ban or restrict their use, potentially leading to significant losses for investors.

However, for those still interested in investing in cryptocurrencies, there are several trusted online exchanges available in Pakistan, including Binance, Kraken, and OKX. These platforms allow users to buy, sell, and trade cryptocurrencies using various payment methods, including credit/debit cards, bank transfers, and mobile payments. It is important to note that investing in cryptocurrencies is a highly volatile and risky endeavour, and individuals should conduct thorough research and carefully evaluate their financial situation before investing.

Choosing a cryptocurrency exchange

There are several factors to consider when choosing a cryptocurrency exchange in Pakistan. Here are some key points to keep in mind:

• Reputation and Security: Look for an exchange with a good reputation and robust security features. Two-factor authentication, SSL encryption, and cold storage options are some of the security features to look for. Binance, for example, offers 2-factor authentication and multi-signature wallets.
• Charges and Fees: Consider the trading, depositing, and withdrawal costs. Compare the fees charged by different exchanges and choose one that offers reasonable and competitive rates. Kraken, for instance, has very low fees, with most users paying only 0.16% per transaction.
• Payment Methods: Choose an exchange that supports your preferred payment methods, such as bank transfers, credit/debit cards, or online payment systems. Most exchanges offer a variety of payment options, but it's important to ensure that your desired method is accepted.
• Customer Support: Opt for an exchange that provides excellent customer support. Look for features like a knowledge base, FAQs, live chat, phone or email support. Kraken and Coinbase, for instance, are known for their responsive and helpful customer support.
• Regulation and Safety: While cryptocurrency is not currently regulated in Pakistan, it is essential to choose an exchange that prioritises safety and security. Look for exchanges that store customer funds in segregated accounts and utilise cold storage options.
• User Interface and Ease of Use: Consider your level of experience and the user-friendliness of the exchange's platform. If you're a beginner, look for a simple and intuitive interface. On the other hand, if you're an experienced trader, you may want more advanced features and customisation options.
• Range of Cryptocurrencies: Different exchanges offer different ranges of cryptocurrencies. If you're interested in a specific cryptocurrency or want access to a wide variety, choose an exchange that offers what you're looking for. Some exchanges, like Binance, offer a vast number of cryptocurrencies.
• Account Verification Process: Some exchanges have a more straightforward account verification process than others. If you want to get started quickly, opt for an exchange with a simpler verification process and ensure you have the necessary documents ready.

Some of the popular cryptocurrency exchanges in Pakistan include Binance, Kraken, OKX, Coinbase, KuCoin, and Changelly. Each exchange has its own strengths, fees, security measures, and features, so it's important to research and choose the one that best aligns with your needs and investment goals.

Understanding the risks

Investing in cryptocurrencies in Pakistan comes with a unique set of risks that you should be aware of before entering the market. Here are some key points to help you understand the risks involved:

Regulatory and Legal Risks

Pakistan's regulatory landscape for cryptocurrencies is still evolving and somewhat uncertain. While there is no explicit ban on cryptocurrencies, the absence of clear regulations means your investment could be at risk. The Securities and Exchange Commission of Pakistan (SECP) has warned the public about the risks of investing in cryptocurrencies, stating that none of the entities promoting them are authorized to receive deposits or provide investment services. The SECP also highlighted the possibility of fraudulent pyramid schemes, with no protection for investors if the virtual currencies fail or the promoting companies go out of business.

Religious Concerns

The use of cryptocurrency in Pakistan has been a subject of debate due to its perceived contradiction with Islamic principles. Some argue that the anonymous nature of cryptocurrency transactions, the absence of central authorities, and the high volatility contradict Islamic finance principles. This controversy has led to a divide in opinions, with some calling for a ban on religious grounds, while others argue that it aligns with Islamic finance as a valuable medium of exchange, a measure of value, and a unit of account.

Volatility and Fraud

Cryptocurrencies are highly volatile, and their values can fluctuate rapidly due to their decentralized nature and lack of government or regulatory body support. This volatility also increases the risk of fraud and hacking, as there are no regulations or central authorities to validate and monitor transactions. As a result, there is no protection for investors in the event of fraud or financial losses.

Government Intervention

The Pakistani government has previously taken actions against cryptocurrencies, with the Federal Board of Revenue and the State Bank of Pakistan banning them in 2018. While the ban was later eased, there is always a chance of further government intervention, including potential restrictions or even a complete ban. Such actions could significantly impact the value of your investments and your ability to access them.

Lack of Awareness and Education

The lack of awareness and education about cryptocurrencies in Pakistan is another risk factor. Many people are still cautious about investing in this new asset class due to its complex nature and the associated risks. This could impact the wider adoption of cryptocurrencies and potentially limit their growth in the country.

In conclusion, investing in cryptocurrencies in Pakistan carries significant risks due to the uncertain regulatory environment, religious concerns, volatility, fraud, and the potential for government intervention. It is crucial to thoroughly research and understand these risks before making any investment decisions.

Payment methods

When choosing a cryptocurrency exchange, it is important to consider the payment methods that the platform supports and whether they are convenient for you. Most exchanges support bank transfers, credit/debit cards, and online payment systems.

If you are a Pakistani user, you can use Binance, one of the world's largest cryptocurrency exchanges, to purchase Bitcoin with a debit or credit card. To do this, you will need to navigate to the "Buy Bitcoin with USD" page on Binance, select Bitcoin and USD from the dropdown menu, choose "Card" as the payment method, and confirm the order.

Another option for Pakistani users is Changelly, a crypto exchange platform that allows users to buy Bitcoin using Pakistani Rupees with contemporary payment methods such as bank cards, wire transfers, and mobile purchases. Changelly also supports the use of credit or debit cards, Apple Pay, Google Pay, and PayPal.

It is worth noting that some payment methods may be subject to additional fees and may take longer to process. For example, bank transfers are considered a secure option for purchasing cryptocurrency but may take longer, and fees may vary.

Setting up a wallet

Setting up a crypto wallet is a crucial step in investing in cryptocurrencies in Pakistan. A crypto wallet is a place where you can securely store your crypto, and there are several types available, each with its own advantages and disadvantages. Here is a detailed guide to help you set up your crypto wallet:

Types of Crypto Wallets:

• Hosted Wallets: These are the most popular and easy-to-set-up crypto wallets. When you buy crypto through an app or exchange, such as Coinbase, your crypto is automatically stored in a hosted wallet. It is similar to a bank account where a third party securely holds your crypto. While hosted wallets are convenient, they may not offer access to all the features that other crypto wallets provide.
• Non-Custodial/Self-Custody Wallets: These wallets give you full control over your crypto, and you are responsible for safeguarding your passwords and private keys. Non-custodial wallets do not rely on a third party to store your crypto. They provide the software necessary for storage, but if you lose your password or private key, you could lose access to your crypto. Additionally, these wallets offer advanced features like yield farming, staking, lending, and borrowing.
• Hardware Wallets: Hardware wallets are physical devices, similar in size to a thumb drive, that store your private keys offline. They provide enhanced security, ensuring your crypto remains safe even if your computer is hacked. However, they are more complex and costly than other types of wallets.

Setting up a Crypto Wallet:

When setting up your crypto wallet, consider your needs and preferences. Here are the steps to set up each type of wallet:

• Hosted Wallet: Choose a reliable and secure platform that complies with government regulations. Create an account on the website, select a strong password, and enable two-step authentication for added security. You can then buy crypto using a bank account or credit card, or transfer crypto you already own to your hosted wallet.
• Non-Custodial/Self-Custody Wallet: Download a wallet app like Coinbase Wallet. Create your account, and be sure to write down your private key or seed phrase, which is typically a random 12-word phrase. Keep it secure as it is the only way to access your crypto. Since you cannot buy crypto with traditional currencies, you will need to transfer crypto from another source into your non-custodial wallet.
• Hardware Wallet: Purchase the hardware from a reputable store, such as Ledger or Trezor. Install the necessary software by downloading it from the official company website. Follow the instructions to set up your wallet, and then transfer your crypto to the hardware wallet.

Remember to do your research and choose a wallet that suits your needs and provides the security and features you require.

The legal status of cryptocurrency in Pakistan

The legality of cryptocurrency in Pakistan is a complex and evolving issue. While there is no explicit ban on cryptocurrency in the country, it exists in a legal grey area, and its status as a means of payment or commodity is unclear.

In 2018, the State Bank of Pakistan (SBP) and the Federal Board of Revenue banned digital currencies, citing concerns about potential illegal activities, high investment risk, and a lack of consumer protection. The SBP has also warned the public about the risks associated with investing in cryptocurrency. However, the Central Bank clarified that Pakistan has not banned cryptocurrency, easing their stance from their previous position.

There have been arrests by the Cyber Crime Wing of the Federal Investigation Agency (FIA) related to cryptocurrency mining and trading, made under money-laundering charges. However, in 2020, a petition was filed against the SBP, arguing that they do not have the authority to ban cryptocurrency trading or mining as it is not explicitly mentioned in Pakistani laws. This led to the conclusion that, as of 2022, cryptocurrency is neither legal nor illegal in Pakistan.

The Securities and Exchange Commission of Pakistan (SECP) has shown an interest in embracing the financial benefits of digital assets and innovation without overregulating. They have released papers outlining potential approaches for regulating cryptocurrency, including registering Initial Exchange Operators and allowing secondary trading on decentralized exchanges or the Pakistan Stock Exchange.

While the future of cryptocurrency in Pakistan is uncertain, the country seems to be moving towards a comprehensive regulatory framework that embraces the potential benefits of digital assets while addressing the associated risks and concerns.

Frequently asked questions