By Iqra Waheed ISLAMABAD, March 10 (INP-WealthPK): The debate over whether cryptocurrency should be legalised rages in Pakistan despite the central bank’s stance that since the digital currency carries risks, it cannot be legalised. State Bank Governor Reza Baqir recently said there were high risks associated with cryptocurrencies. He said SBP was working to develop a better understanding of the future currencies. In 2021, Pakistan documented an abnormal rise of 711% in cryptocurrencies with the virtual currency performing the best in all the assets. The value of cryptocurrency recorded in 2021 was about $20 billion, which was over and above the federal reserves, according to research conducted by the Federation of Pakistan Chambers of Commerce and Industry. Cryptocurrencies have emerged rapidly in the Pakistani market because of their potential benefits as they ensure easy and faster transfer of funds and transactions. They carry minimum or no transfer fee, no limit on withdrawals and purchases. They appear highly secure as they do not involve any intermediary. Further, there are no restrictions on cryptocurrencies like the banking sector (documentation and paperwork). Notwithstanding the numerous benefits, cryptocurrency is not safe as transactions involving it are not traceable and no authority exists to monitor this market. High volatility in cryptocurrencies means high risk as they are just based on speculations, and bubble can burst anytime and lead to a financial crisis. Talking about the future of virtual currency, Dr Ahmed Faraz, an assistant professor at the Pakistan Institute of Development Economics (PIDE), told WealthPK that cryptocurrency cannot be called a currency as it does not fulfil the requirements of a currency. “It can be an investment tool but not a currency. Its value keeps fluctuating; hence it cannot be used for trade purposes.” He said, “Money is something that is controlled. The central bank controls the money supply, but crypto has no control system. Governments increase or decrease the money supply depending on the prevailing market position, but in case of cryptocurrencies, those policies cannot work.” So, he added, despite benefits, cryptocurrencies won’t be backed by the central bank, the government or any other entity. “The value of cryptocurrencies depends on the market supply and demand, or what the market is willing to pay. This enhances the chances of money laundering, exploitation and terror financing.” He pointed out that the Federal Investigation Agency has unearthed a $18 billion cryptocurrency scam. Ahmed Faraz of PIDE called for banning the cryptocurrency as Pakistan does not have any effective strategy to overcome the risks associated with it. However, he said that Pakistan can launch its own digital currency in future with a proper monitoring system in place. Presently, 1,500 cryptocurrencies exist around the world, and the major market is captured by 10 currencies that cover almost 80% of the market share. While 55% of the market is captured by Bitcoin and Etherium. The value of cryptocurrencies globally topped Euro 330 billion by 2018. Bitcoin alone reached $300 billion in 2020, with 18,237,250 of bitcoins in the market though CoinGecko in 2019 reported high volatility ranging from $3,500 to $13,500. The global market of cryptocurrencies reached $1,782 billion in 2021, which is expected to further expand to $32,420 billion by 2027. Countries that have banned cryptocurrency include China, Iraq, Egypt, Oman, Qatar, Algeria, Morocco, Bangladesh and Tunisia. Another 43 countries have implicitly banned digital currencies by barring banks from dealing in cryptocurrencies. According to US Securities and Exchange Commission Chairman Gary Gensler, “There are high chances that investors will get hurt if strict regulations are not introduced by the government. The value of cryptocurrency can be speculated but in reality, it’s new and has not much history on which predictions can be based. Cryptocurrencies are very volatile, so it’s better to have small investments”.