The New Frontier of Digital Dominance

In the rapidly evolving landscape of global finance, cryptocurrency has transcended its role as a mere financial experiment to become a pivotal tool in diplomacy, economic strategy, and geopolitical maneuvering. Countries ranging from Pakistan to Bhutan, and the US to the UAE, are increasingly integrating crypto into their national agendas. Yet, India finds itself in a state of cautious hesitation, ensnared in a regulatory ambiguity that experts warn could be perilous.

Pakistan's Strategic Crypto Embrace

Shortly before the Pahalgam terror attack, Binance founder Changpeng Zhao committed to advising the newly established Pakistan Crypto Council (PCC). This move was quickly followed by President Asif Ali Zardari's signing of an ordinance to establish the Pakistan Virtual Asset Regulatory Authority (PVARA), marking a significant step towards the licensing and regulation of crypto entities within the country. This development aligns with Pakistan's growing association with World Liberty Financial (WLF), a crypto firm with links to former US President Donald Trump.

Observers note that Pakistan's crypto initiatives are not solely aimed at attracting investment but also at fostering closer ties with Washington, potentially explaining the US's restrained response to Pakistan during Operation Sindoor. Anirudh Suri of the India Internet Fund highlights the strategic financial flows crypto enables for Pakistan, posing a challenge to India's efforts to curb terror financing through international bodies like FATF and IMF.

India's Crypto Conundrum

Despite repeated prompts from the Supreme Court, India has yet to articulate a clear stance on cryptocurrency. The Reserve Bank of India remains wary, voicing concerns over monetary stability, while SEBI has proposed a multi-agency regulatory framework. Currently, India imposes a 30% tax on crypto gains and a 1% TDS on larger transactions, with exchanges mandated to register with FIU-IND. However, the anticipated discussion paper on a national crypto framework, expected in June, remains pending.

Amidst this uncertainty, reports indicate a surge in crypto's use for terror financing, prompting FIU to instruct exchanges to monitor transactions from Jammu and Kashmir more closely, with a particular focus on private wallets and privacy coins.

Bhutan's Bold Bitcoin Bet

Contrasting sharply with Pakistan's approach, Bhutan has leveraged its surplus hydropower to mine over $1.3 billion worth of bitcoin, accounting for nearly 40% of its GDP. This initiative supports public spending, tourism projects, and even civil servant salary increases. While India supports Bhutan's economic diversification, concerns linger over reduced hydropower exports and the country's growing dependence on Chinese bitcoin mining equipment.

The US and the GENIUS Act

In the US, the proposed GENIUS Act seeks to regulate stablecoins, including USD1, launched by Trump's WLF. With Trump reportedly earning $57.4 million in 2024 from this venture, allegations have surfaced that the act could facilitate political favors for investors. An Abu Dhabi-based fund's $2 billion pledge in USD1 for Binance underscores the global ramifications of such policies, with experts warning of potential exploitation by countries like Pakistan to regain US favor.

India's Path Forward

Experts urge India to act swiftly, emphasizing that crypto's borderless nature makes it a global rather than domestic issue. The lack of legal clarity under India's securities, foreign exchange, and tax laws creates confusion, highlighting the need for a robust, transparent crypto strategy to avoid being left behind in the digital age.