For years, crypto in Pakistan has lived in a strange twilight zone – loudly debated on TV talk shows, quietly restricted by regulators, yet rapidly adopted by ordinary people. It is not fully legal, not fully banned, and definitely not fully understood. But in the background of all this confusion lies a powerful force that rarely gets discussed openly: Pakistan’s enormous shadow economy.
Estimates suggest that Pakistan’s informal or shadow economy is worth roughly 35%–40% of GDP, with some studies putting it closer to 457 billion dollars – actually larger than the documented economy itself. This underground layer of unreported trade, cash transactions, and off-the-books labor is where a huge share of real economic life happens. And increasingly, it is where crypto adoption is quietly accelerating.
At the same time, Pakistan consistently ranks among the top countries in the world for global crypto adoption, with an estimated 20 million Pakistanis holding some form of cryptocurrency and total holdings in the 20–25 billion dollar range. For a country under constant pressure from inflation, currency depreciation, capital controls, and a fragile banking system, the appeal of a borderless, always-on digital asset system is obvious.
This article explores why crypto in Pakistan’s shadow economy is “ignored but inevitable,” how it interacts with traditional systems like hawala/hundi, what regulators are doing, and why the next few years will determine whether this trend becomes a national strength or a systemic risk.
Pakistan’s Shadow Economy: The Hidden Giant
How big is Pakistan’s informal and shadow economy?
Pakistan’s informal economy is not a side story; it is the main story. Various studies by local and international institutions estimate that 35%–40% of the country’s GDP takes place outside the formal tax net, with some recent estimates pushing that figure even higher. One study quoted officials putting the informal economy around 457 billion dollars in 2023 – about 64% larger than the documented economy.
This huge underground layer includes unregistered small businesses, cash-based retail, informal manufacturing, unreported services, and of course, off-the-books financial flows. For millions of Pakistanis, especially in urban slums and rural areas, this is not “illegal” in a moral sense – it is simply the only available system. In such an environment, any technology that allows money to move outside formal channels will naturally find willing users. That is exactly where Bitcoin, stablecoins, and other digital assets have slipped in.
Cash, mistrust, and the culture of informality
The dominance of cash in Pakistan is not just about convenience; it is rooted in mistrust of institutions, fear of unpredictable taxation, and a long history of policy U-turns. Small traders often avoid registering their businesses because they fear harassment or arbitrary demands from officials. Many ordinary citizens avoid banks because of documentation requirements, fees, or simple lack of access.
This culture of informality makes crypto feel weirdly familiar. Peer-to-peer crypto trading, informal WhatsApp groups, and Telegram channels run by local “dealers” mimic the social dynamics of traditional cash and hawala networks. People are used to sending money through personal trust networks; crypto wallets and P2P exchanges simply add a digital layer on top of that existing mindset.
Crypto Enters the Grey Zone
From speculative asset to survival tool
When crypto in Pakistan first took off around 2020–2021, much of the hype revolved around speculation: young people trading Bitcoin, Ethereum, and memecoins to chase quick profits. But as inflation soared, the rupee depreciated, and economic uncertainty intensified, many Pakistanis began to see crypto less as a lottery ticket and more as a financial lifeboat.
Chainalysis data and independent analyses show that Pakistan ranked in the top three globally for grassroots crypto adoption, driven heavily by peer-to-peer platforms and small-scale transactions rather than institutional investment. For someone watching the rupee fall, converting part of their savings into USDT or another stablecoin became a simple way to store value in dollars without opening a foreign bank account.
In this sense, crypto in the shadow economy is not just about hiding wealth; it is often about preserving it. For freelancers, online sellers, and even small importers squeezed by capital controls, digital assets enable them to receive payments, hedge currency risk, and move funds across borders faster than the formal system allows.
The rise of P2P platforms and informal brokers
Because banks were barred for years from dealing with virtual assets under a 2018 State Bank of Pakistan (SBP) advisory, Pakistani users gravitated towards peer-to-peer (P2P) crypto trading and local brokers. These setups fit perfectly into the shadow economy:
Instead of formal on-ramps, users meet traders via apps, social media, or word-of-mouth, send them money through local bank transfers or mobile wallets, and receive crypto in their wallets. The transactions are often small, frequent, and loosely documented – ideal characteristics for a system living within the grey zones of regulation.
Over time, a hybrid ecosystem has emerged: half modern fintech, half old-school money changer culture. The line between crypto dealer, hundi agent, and currency exchanger is often blurry. That blurred line is exactly what makes crypto such a natural fit for Pakistan’s shadow financial system.
Remittances, Hawala, and Stablecoins
Why overseas Pakistanis are drawn to crypto
Pakistan receives roughly 30–35 billion dollars in annual remittances from overseas workers, a lifeline for both families and the macroeconomy. Traditionally, this flow has been dominated by banks, money transfer operators, and informal hawala/hundi networks.
As crypto remittances have become easier through exchanges and stablecoins, some expatriate Pakistanis have begun experimenting with sending funds via USDT, USDC, or Bitcoin to trusted contacts back home, who then convert it into rupees. The appeal is straightforward: low fees, fast settlement, and the ability to bypass restrictive channels or delays.
While formal data on crypto-based remittances is hard to track – precisely because it lives in the shadow economy – anecdotal evidence from traders and community groups suggests that this channel is steadily growing, especially among younger overseas workers and freelancers.
Crypto versus traditional hawala/hundi
The comparison between crypto and hawala is fascinating. Hawala is based purely on trust between brokers: no on-chain record, no formal contract, often no paper trail. Crypto, in contrast, offers borderless transfers with a permanent, transparent ledger – but wrapped in pseudonymity and outside conventional regulation.
For many users, the choice is not “either/or” but “both/and.” A migrant might send USDT on a blockchain, which is then swapped into rupees by a local dealer who uses their own hawala network to balance books. In this way, crypto becomes a digital rail for hawala, blending the old informal system with new blockchain infrastructure.
From a policy perspective, this blending is both powerful and worrying. It can reduce costs and speed up remittances, but it can also make anti–money laundering (AML) and counter-terror financing (CFT) enforcement more complex if regulators remain on the sidelines.
Legal Grey Area and Regulatory Whiplash
Bans, advisories, and mixed messages
For years, the official narrative was that crypto is banned in Pakistan. The State Bank’s 2018 circular warned financial institutions not to deal in virtual currencies and directed them to report suspicious crypto cases to the Financial Monitoring Unit, which could involve the FIA. Finance officials repeatedly told parliamentary committees that cryptocurrencies were illegal and that people involved could be investigated.
Yet in 2025, the SBP issued a clarification: it had never formally declared cryptocurrencies illegal, only restricted regulated entities from directly dealing with them due to the absence of a legal framework. The bank also confirmed that it was working with the Finance Division and a newly created Pakistan Crypto Council to design regulations.
This regulatory whiplash – “crypto is banned” versus “we never banned it, just advised caution” – created deep confusion. For people in the shadow economy, the message was simple: the state itself is unsure, so they might as well keep using crypto informally until clear rules arrive.
New authorities and slow movement toward regulation
In 2025, the government moved further by establishing the Pakistan Crypto Council (PCC) and later the Pakistan Virtual Assets Regulatory Authority (PVARA), tasked with designing a proper regulatory and licensing framework for virtual assets and crypto businesses. Discussions have included withdrawing the old 2018 circular, licensing banks and exchange companies for crypto operations, and aligning with global AML/CFT standards.
If implemented effectively, this would begin to pull crypto activity out of the shadows and into the formal economy. But institutions are still drafting rules, debating taxation, and negotiating with international partners like the IMF. In the meantime, the legal ambiguity remains, and the shadow crypto economy continues to grow in the gaps between policy and practice.
Everyday Use Cases Driving Crypto in the Shadow Economy
Freelancers and digital workers
One of the most visible drivers of crypto adoption in Pakistan is the booming population of freelancers and remote workers. Pakistan consistently ranks among the top countries for online gig work, with hundreds of thousands of developers, designers, writers, and digital marketers earning in dollars.
When platforms restrict traditional payment methods, or when local bank channels are slow and expensive, freelancers often turn to crypto payouts. Getting paid in USDT, Bitcoin, or other digital assets allows them to receive money quickly and then cash out through P2P traders. For many of them, this is not about evading tax as much as it is about overcoming friction, documentation hurdles, and the limitations of local banking infrastructure. Because many freelancers operate as sole proprietors without formal registration, their activity automatically falls into the informal economy. Crypto simply becomes the de facto settlement layer for that informal digital labor market.
Small traders, importers, and capital controls
Another major group using crypto informally includes small importers and traders who struggle with foreign exchange restrictions and documentary requirements. When it becomes difficult to open Letters of Credit, access dollars, or move funds quickly through banks, some businesses quietly experiment with crypto payments to foreign suppliers.
This might involve converting rupees to stablecoins via a local dealer, sending them to a supplier’s wallet abroad, and receiving goods without ever touching the formal SWIFT system. While risky and not officially sanctioned, this method can be faster and sometimes cheaper, especially during periods of currency crisis or strict capital controls. In effect, crypto in Pakistan’s shadow economy helps lubricate small-scale cross-border trade that would otherwise be stuck or forced entirely into cash and hawala channels.
Saving against inflation and rupee depreciation
For ordinary savers, the story is even simpler. High inflation, currency devaluation, and periodic fears of bank instability push people to look for alternative stores of value. Traditionally, that meant gold, dollars under the mattress, or real estate. Today, it increasingly includes Bitcoin and dollar-pegged stablecoins.
These holdings often never appear in official statistics. A shopkeeper might quietly accumulate a little Bitcoin in Pakistan as a long-term bet. A salaried worker might convert part of their income each month into USDT to hedge against further rupee depreciation. None of this passes through formal regulatory channels; it all sits in private wallets, connected to the shadow economy rather than the banking sector.
Risks: Scams, Capital Flight, and AML Concerns
Why regulators are worried
While the rise of crypto in Pakistan’s shadow economy offers real benefits – easier remittances, financial inclusion, and diversification – it also raises significant risks. Law enforcement agencies like the FIA have repeatedly warned about crypto being used for illegal money transfers, fraud, and online scams.
Because transactions can bypass banks, authorities lose visibility into large flows that might be connected to money laundering, tax evasion, or more serious crimes. The combination of a huge informal economy, weak documentation, and pseudo-anonymous crypto wallets creates a challenging environment for AML/CFT compliance. At the macro level, there is also concern about capital flight. If wealthy individuals convert large sums into crypto and move them offshore, it can further strain foreign exchange reserves and undermine official capital controls.
Shadow economy or parallel financial system?
As crypto adoption deepens, the line between a “shadow economy” and a parallel financial system becomes increasingly thin. On one hand, crypto offers a chance to modernize and digitize payments. On the other, if most of that activity remains unregulated, the state risks losing both tax revenue and monetary oversight.
This tension is at the core of Pakistan’s policy dilemma. Overly harsh crackdowns simply push activity deeper underground, while complete laissez-faire could invite systemic risks and international pressure, especially from bodies concerned with global financial stability.
Can Pakistan Bring Crypto into the Formal Fold?
A realistic path to formalization
The good news is that Pakistan is no longer pretending crypto does not exist. With institutions like the Pakistan Crypto Council and PVARA now on the scene, and with SBP openly discussing a regulatory framework and even a central bank digital currency, the direction of travel is clear: from denial to engagement. A realistic path forward would involve:
First, clear legal definitions of virtual assets, exchanges, and wallet providers, so users and businesses know where they stand. Second, licensing and supervising crypto service providers under strong AML/CFT rules, while still allowing peer-to-peer markets to operate in a more transparent way. Third, sensible taxation that does not punish small users but brings large-scale activity into the net. Done right, this would gradually migrate a meaningful share of crypto activity from the shadow economy into the formal sector, without suffocating innovation or pushing users back into risky underground channels.
Turning inevitability into advantage
The title “Ignored but Inevitable” says it all. Crypto in Pakistan’s shadow economy is not a future possibility; it is already here. People are using Bitcoin, stablecoins, and other digital assets to save, trade, remit, and invest – whether or not the state acknowledges it.
The real question is whether Pakistan will harness this energy constructively. With one of the world’s largest informal sectors and some of the highest crypto adoption rates, the country is uniquely positioned. If it can craft a framework that respects both innovation and public interest, crypto could help formalize parts of the shadow economy, expand the tax base, and offer modern financial services to millions. If it fails, the same technology could deepen informality, accelerate capital flight, and widen the gap between the formal state and the real economy where people actually live and work.
Conclusion
The rise of crypto in Pakistan’s shadow economy is a story of necessity, not just curiosity. In a country where the informal sector may rival or surpass the documented economy, and where millions lack stable access to banking, it is no surprise that a borderless, programmable form of money has taken root.
For freelancers, small traders, and ordinary savers, crypto offers speed, flexibility, and a measure of independence from inflation and bureaucracy. For overseas Pakistanis, it provides a new rail for remittances and value transfer. For hawala networks and informal brokers, it represents both a competitor and a powerful new tool.
Yet this quiet revolution is unfolding in a legal grey zone, with regulators oscillating between warnings and tentative embrace. As new institutions move toward regulation, Pakistan faces a pivotal choice: either treat crypto as an enemy to be chased deeper into the shadows, or as a reality to be shaped into something safer, fairer, and more productive. Ignored or not, crypto in Pakistan is here to stay. The real challenge now is to bring it out of the shadows and into the spotlight in a way that works for the people, the economy, and the state alike.
FAQs
1Q: Is crypto legal or illegal in Pakistan right now?
The situation is still ambiguous. The State Bank’s 2018 advisory tells banks and regulated entities not to deal directly in virtual assets, and finance officials have often described crypto as “banned.” At the same time, SBP has clarified that it has never formally declared cryptocurrencies illegal, and the government has created bodies like the Pakistan Crypto Council and PVARA to design a regulatory framework. Practically, individuals still use crypto in Pakistan, but without a fully clear legal regime.
Q: Why is crypto so popular in Pakistan’s shadow economy?
Crypto is popular because it solves real problems for people operating outside the formal system. It helps freelancers get paid from abroad, lets small traders move money across borders, offers savers a hedge against rupee depreciation, and provides an alternative to slow or restricted banking channels. In a country where a large part of economic activity is informal and cash-based, crypto fits the existing culture of off-the-books transactions while adding a global, digital layer.
Q: Does using crypto for remittances and trade break the law?
It depends on how it is done. Sending or receiving crypto remittances through informal channels can violate existing foreign exchange regulations, tax laws, or AML rules, especially if the amounts are large or go unreported. However, the legal framework is still evolving, and enforcement has focused more on large-scale scams and illegal money transfer schemes than small retail users. As regulation develops, people who want to stay compliant will likely need to use licensed exchanges and properly declare their holdings or gains.
Q: What are the main risks of crypto in the shadow economy?
The biggest risks are fraud, scams, and loss of funds due to hacks or bad actors, since informal P2P markets offer little protection. There are also systemic risks: unchecked crypto flows can enable money laundering, tax evasion, and capital flight, which in turn invite stricter crackdowns and international pressure. For ordinary users, the volatility of coins like Bitcoin, regulatory uncertainty, and lack of recourse if something goes wrong are all serious concerns.
5. How could Pakistan integrate crypto without harming financial stability?
Pakistan could gradually bring crypto activity into the formal sector by licensing exchanges and wallet providers, enforcing strong KYC/AML rules, and educating the public about risks. A balanced approach would recognize legitimate use cases—like remittances and digital work—while aggressively targeting scams and illicit flows. Over time, regulated crypto in Pakistan could help bridge the gap between the shadow economy and the formal financial system, expanding inclusion and building a more resilient digital economy.
