Regulatory Hurdles Slow Crypto Adoption in India & Pakistan, Chainalysis Report Reveals

Hostile regulatory environments see crypto adoption drop sharply in India and Pakistan, a new Chainalysis report reveals.

India, once home to the second largest crypto-loving demographic in the world, has seen its crypto adoption ranking drop to fourth place year-over-year, according to a 2022 Chainalysis report. Its neighbor, Pakistan, it is now the country with the sixth highest cryptocurrency adoption rate in the world, dropping three places over the same period.

According to the report, most Indian transactions involve ETH or wrapped ETH, while most Pakistani transactions use stablecoins as carriers of value for remittances. One ETH can be converted to an ERC-20 token like wETH at a 1:1 ratio for use in decentralized applications and NFT markets.

In both countries, blockchain companies in the remittance space are beginning to disrupt the market, with a cumulative value of more than $40 billion. The Pakistani government recently partnered with AliPay to receive remittances from Malaysia.

Rigid taxes cut Indian trade volumes.

Two new taxes introduced this year fueled India’s drop in ranking.

Indian cryptocurrency exchanges were hit hard by the government-imposed 30% tax on cryptocurrency earnings in April 2022. Local media estimated a 15-55% drop in trading volumes on days following. Internet traffic to crypto exchanges fell by 40%.

WazirX, an Indian exchange that opposing probes earlier this year by India’s Directorate of Enforcement, saw its trading volume fell from $208 million to just under $100 million before the new law took effect. On July 1, 2022, an additional tax of 1% deducted at source came into effect.

Despite the falls, one industry executive remains optimistic.

According to Vikram Rangala of the Indian exchange ZebPay, “India has dozens of [crypto] projects working to establish property rights, access tickets and membership passes, help rural artisans monetize, even give token holders the chance to “skydive with a movie star in Dubai” and more.

He also offered a theory about the government’s reasoning: “From conversations my colleagues and I have had, people in the Indian government, including members of parliament, are not anti-crypto per se. Some are very pro-crypto. But they worry that their constituents will trade a volatile asset without proper information. You can’t see any public servant supporting something that is so risky for most people. “

On the other hand, the Pakistani government has yet to rule on the legality of cryptocurrencies. The central bank and the government recommended a complete ban on cryptocurrencies in January 2022. After that, the government formed three subcommittees to help implement policies.

Complicating matters is adding the country to the Financial Action Task Force’s gray list, which limits the country’s avenues for financial aid.

Central bank governor Reza Baqir said in February 2022 that the disadvantages of cryptocurrencies outweigh its benefits.

In general, NFTs and stablecoins account for the majority of crypto volume

Vietnam ranked first in Chainalysis’s cryptocurrency adoption index for the second year, while the second place went to the Philippines. Both can attribute their high rankings to the penetration of play-to-earn (P2E) games like Axie Infinity that require the use of NFTs, and also to stable coin remittances

According to Manan Vora, a senior official at Liminial, a Singaporean company crypto wallet infrastructure provider, stablecoins offer children sending money to their parents in Vietnam and the Philippines a cheaper way to transact.

“Why pay 3% to a bank broker and wait two days for the funds to arrive when USDT/USDC can reach them in a minute, with almost zero fees?” he said.

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