The risks of Pakistan government cryptocurrency ventures are sparking widespread debate, highlighting concerns over speculative investments and their potential impact on public resources. While some view these initiatives as innovative, others emphasize the dangers of treating cryptocurrencies as a national economic strategy.
Crypto Influence vs. Serious Business: A Crucial Distinction
It’s important to differentiate between using cryptocurrency as a tool for political influence and treating it as a genuine business opportunity. When governments involve public funds, the stakes become much higher. Pakistan’s emerging Crypto Council has sparked proposals on expanding its crypto presence globally, but these suggestions must be evaluated prudently.
One recent proposal suggested investing a portion of Pakistan’s foreign exchange reserves into cryptocurrencies, highlighting Bitcoin’s historic rise in value. The pitch painted a picture of multiplying reserves by riding Bitcoin’s wave. However, this argument omits a critical factor: cryptocurrencies are notoriously volatile. Sovereign reserves, pension funds, and institutional investments prioritize safety, stability, and fixed returns, avoiding high-risk, fluctuating assets like crypto.
The Electricity Conundrum: Who Benefits?
Another idea gaining traction involves developing cryptocurrency mining in Pakistan by offering subsidized electricity rates as low as five to six cents per unit. This contrasts sharply with the rates paid by consumers and industry, which range from around 14 to 20 cents per unit. Such a proposal raises a fundamental question: if Pakistan has excess cheap electricity, why should crypto miners receive preferential treatment over other consumers or industries?
Adding to the confusion, the Finance Ministry recently announced allocating 2,000 MW for crypto mining. This statement baffled many since Pakistan does not operate electricity allocation quotas. The announcement lacked crucial details like pricing, leading to questions about what the government intends to commit and how this will affect the energy market and public resources.
Regulated Crypto Exchanges: A Safer Step Forward
Among the various crypto-related ideas, creating onshore cryptocurrency exchanges stands out as relatively less risky. Establishing regulated platforms for crypto trading, similar to Pakistan’s existing commodities exchange, could bring transparency and governance to an otherwise volatile market. This approach regulates activity without exposing public funds or resources directly to crypto’s unpredictable nature.
Understanding Crypto as a Fictitious Asset
Cryptocurrency, at its core, remains a speculative asset, often described as a “fictitious asset.” Fictitious assets exist only in the minds of holders but gain liquidity when a critical mass believes in their value. Traditional money and gold fall under this category but are widely accepted and liquid due to broad societal trust.
Cryptocurrency, however, lacks this deep societal acceptance and functions primarily as a speculative vehicle. Its value depends heavily on market speculation, often driven by interest groups and large speculative schemes, including some promoted by governmental actors. This gives crypto its volatile and precarious character.
Lessons from Past Financial Crises
History offers cautionary tales about fictitious assets spiraling out of control. The 2008 global financial crisis was fueled by Collateralized Debt Obligations (CDOs), complex financial products built on risky mortgage bundles disguised as secure investments. These unregulated fictitious assets created systemic risks that nearly collapsed the world economy.
While CDOs remain in the financial landscape today, they operate under strict regulations that reduce their potential harm. However, speculative capital finds new avenues, such as unscrupulous real estate schemes selling land plots they don’t own or have no right to develop—another form of fictitious asset fraught with danger for uninformed investors.
Why Governments Should Be Wary
Pakistan must be cautious about rushing into the crypto world with public money or resources. Cryptocurrencies represent high risk, volatile investments, unsuitable for managing sovereign wealth or national reserves. They pose dangers similar to historical financial bubbles, like the South Sea Bubble of the 18th century, which saw investments pour into a company with no real business prospects, leading to economic collapse.
Trading crypto privately and voluntarily remains an individual choice. But when the state steps in, protecting public funds and resources becomes paramount. The government should remain vigilant against the enticing but often misleading promises of crypto proponents who push these assets as quick wealth or strategic national advantage.
Conclusion: Proceed with Caution
Pakistan’s growing interest in cryptocurrency, particularly as a tool for political influence or economic growth, must be tempered with sober analysis. Proposals to invest foreign reserves in crypto or subsidize mining with cheap electricity risk misallocating public resources on speculative grounds.
Creating regulated crypto exchanges can bring some oversight to trading activities without exposing the state to undue risk. But beyond this, Pakistan should prioritize safeguarding its financial stability and public assets over chasing uncertain crypto gains.
By learning from past financial crises and understanding crypto’s true speculative nature, Pakistan can navigate the digital currency landscape more wisely—balancing innovation with caution.
