India, Pakistan, and the New Crypto Geopolitics

A Trump-linked firm, World Liberty Financial Inc. (WLFI), has entered into a strategic cryptocurrency partnership with Pakistan, signaling Islamabad’s digital pivot and prompting concerns in India over geopolitical and financial ramifications in the absence of a national crypto strategy.

Trump’s Crypto Push, Pakistan’s Digital Pivot & India’s Strategic Dilemma

Emergence of the US-Pakistan Crypto Nexus

• Trump's Strategic Shift on Crypto: The second Trump administration has pivoted towards aggressive promotion of cryptocurrencies, reversing earlier skepticism. Key actions include:
  • Issuance of two executive orders bolstering national blockchain strategy.
  • Establishment of a Strategic Bitcoin Reserve.
  • Creation of a US Digital Asset Stockpile.
• WLFI-Pakistan MoU: WLFI, with ties to the Trump family, signed an MoU with the newly formed Pakistan Crypto Council. Key objectives:
  • Promoting financial inclusion through blockchain.
  • Monetising rare earth assets via digital tokens.
  • Establishing stablecoins for trade and remittance facilitation.
  • Positioning Pakistan as a regional crypto hub.

Pakistan’s Crypto Strategy: Intent and Instruments

• Institutional Reforms: Pakistan appointed Bilal bin Saqib as crypto advisor to the PM and head of the Pakistan Crypto Council.
• Diaspora Diplomacy: Pakistan’s diaspora engagement, particularly in the US, is being leveraged to push crypto diplomacy and revive ties with the Trump administration.
• Economic Potential: Despite weak economic fundamentals, Pakistan estimates a domestic crypto user base of 25 million and a market value of $2 billion.

India’s Policy Vacuum on Cryptocurrencies

• Incoherent Regulatory Approach: India taxes crypto assets (30% capital gains, 1% TDS) but lacks a formal regulatory framework.
• Judicial Concerns: The Supreme Court, in a crypto fraud case, flagged the risks of policy ambiguity and legal vacuum.
• Missed Strategic Opportunities: India has the largest crypto user base globally (100+ million), yet there is no coordinated effort toward regulation or technological adoption.

Geopolitical and Security Implications

• Cross-Border Terror Financing Risks: Cryptocurrencies can be exploited for illicit flows, terror financing, and money laundering — especially without central bank oversight.
• Digital Strategic Leverage: Just as Pakistan leveraged nuclear technology to alter South Asian security dynamics, crypto could offer it similar asymmetric advantages if India remains passive.
• US Dollar Supremacy through Digital Means: Trump's strategy to back dollar-linked stablecoins while banning CBDCs aims to maintain US monetary dominance — with geopolitical implications for India and other regional economies.

Way Forward:

• Develop a National Crypto Policy: Draft a comprehensive law covering crypto asset classification, taxation, KYC/AML norms, investor protection, and innovation promotion.
• Set up a National Blockchain Innovation Council: Include members from RBI, SEBI, MEITY, NITI Aayog, and private sector experts to design and implement a national digital asset strategy.
• Leverage India’s Tech Diaspora: Engage Indian-origin innovators and entrepreneurs in the crypto and fintech sectors globally to build partnerships and influence digital policy norms.
• Enhance Cross-Border Crypto Surveillance: Strengthen regulatory coordination with FATF, Interpol, and G20 financial task forces to monitor and curb crypto misuse.
• Accelerate CBDC Deployment: While Trump’s US rejects CBDCs, India should fast-track the RBI’s Digital Rupee to improve financial inclusion and digitise payments securely.