Bitcoin News Today: Fragile Economy, Weak Regulations Fuel Pakistan's Crypto-Driven Forex Drain

Pakistan's financial authorities are sounding the alarm over a massive outflow of foreign currency into unregulated cryptocurrency markets, with nearly $600 million drained this year alone through illicit transactions. The outflow, driven by customers siphoning dollars from licensed exchange firms into crypto platforms, has exacerbated forex leakage and raised concerns about regulatory gaps in a nation already grappling with economic fragility.

The Exchange Companies Association of Pakistan (ECAP) revealed that individuals are purchasing U.S. dollars from authorized firms, depositing them into foreign currency accounts, and later withdrawing cash to invest in cryptocurrencies through unregulated channels. This practice has slashed dollar inflows into the banking system by 23%, with $600 million exiting formal channels between January and October. "These disappeared dollars were mostly invested in cryptocurrencies," said ECAP Chairman Malik Bostan.

The trend has deepened pressures on Pakistan's foreign exchange reserves, which have long been strained by trade deficits and political instability. Dollar sales to banks fell to $3 billion year-to-date, down from $4 billion in the same period last year, according to ECAP data. Meanwhile, commercial banks' dollar holdings rose to $4.625 billion by November, reflecting tighter controls on informal flows but also highlighting the scale of the crypto-driven drain.

The State Bank of Pakistan (SBP) has responded with stricter directives, requiring banks and exchange firms to deposit foreign currency transactions directly into customer accounts rather than issuing cash. However, experts warn this measure may not fully curb the trend, as funds can still be withdrawn and funneled into crypto.

The outflow coincides with a global crypto slump, where the sector has erased over $1.2 trillion in value since October, driven by Bitcoin's 25% drop and broader market volatility. Pakistan's illicit crypto activity mirrors global challenges, including Malaysia's $1.1 billion loss to illegal mining and U.S. spot Bitcoin ETF outflows exceeding $3.1 billion in November. Yet, in Pakistan, the issue is compounded by weak enforcement and a lack of clarity on crypto's legal status.

Geopolitical shifts further complicate the landscape. U.S. President Donald Trump's repeated claims of brokering a ceasefire between India and Pakistan-and his administration's pivot toward Islamabad-have spurred interest in crypto as a tool for cross-border transactions. Pakistan's military leadership, meanwhile, has signaled openness to crypto collaboration with U.S. firms, including a rare-earth minerals deal with Missouri-based US Strategic Metals reported by Bloomberg.

As Pakistan eyes a return to international capital markets, including issuing Panda Bonds in China, officials face a delicate balancing act. While the SBP aims to bolster reserves to $17 billion by FY26, the illicit crypto drain underscores vulnerabilities in a system still reeling from a 2023 default averted by an IMF bailout.

According to ECAP reports: "600m Crypto Drain Sparks Alarm in Pakistan's Fragile Economy"

According to financial analysis: "Pakistan loses $600 million to illegal crypto transactions as dollar sales to banks fall 23%"

According to crypto news sources: "Illegal Crypto Mining Costs Malaysia US$1.11B, TNB Confirms Massive Power Theft"

According to Bloomberg analysis: "Abu Dhabi Fund Tripled Bitcoin Bet in Months Before Crypto Crash"

According to business standard analysis: "After record highs, why crypto crashed and wiped out $1.2 trillion in weeks"

According to Bloomberg reporting: "Trump Puts Pakistan Back on World Stage as Ties With India Fray"