This paper is an attempt to highlight Bitcoin’s ever-increasing importance to Pakistan’s socioeconomic future. For purposes of our discussion, Bitcoin refers to the decentralized digital asset with a market capitalization of approximately $900 billion and growing as well as its blockchain-powered monetary network that enables peer-to-peer transactions without relying on a trusted intermediary.
Before we proceed, let us be clear on what this paper will not set out to achieve. Although we are very bullish on bitcoin as an asset class over the long term, our commentary will not include any price forecasts. We will not be conducting a technical review of the blockchain technology in this study. Notwithstanding their importance, these topics have been studied in detail by experts more qualified than our team. Furthermore, a deep dive into a pricing and technical discussion will detract us from the main message: Why should Pakistan adopt bitcoin now?
Cryptocurrency adoption has started to gather momentum in the country. Chainalysis’ 2021 Global Crypto Adoption Index has Pakistan ranked in third place globally. Earlier this year, the province of Khyber Pakhtunkhwa announced plans to build pilot cryptocurrency mining farms. At the federal level, a committee has been formed to study cryptocurrency regulation. These are promising developments. However, there is so much more left to accomplish and a small window of opportunity presents itself to act.
Pakistan has several ways to benefit from the Bitcoin ecosystem. Our team believes bitcoin is primed to outperform traditional assets moving forward. Before the price of bitcoin goes beyond the country’s affordability threshold, we propose the State Bank of Pakistan start by converting up to 5% of their sovereign gold reserves (approximately $180 million) into this asset. The upside scenario can have a positive material impact on the state of the country’s asset reserve balance.
Using the internet and a smartphone, here lies an opportunity for the average Pakistani investor to plug into the world’s best performing asset over the past decade. These unmatched returns will provide prosperity across investing households, boost the local economy in the form of additional demand and generate tax on capital gains. We suggest the State Bank of Pakistan and securities regulator open up access to this asset class for all Pakistani investors. Movement between the Bitcoin ecosystem and traditional financial institutions needs to be a low-cost and frictionless endeavor. A fully regulated national cryptocurrency exchange should be introduced with incentives to entice domestic participation. A bitcoin ETF trading on the Pakistan Stock Exchange will offer an attractive investment for local stock market investors desperate for diversified exposure.
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