Looking Ahead at 2025

Crypto, Gold and Forex: Why Are Alternative Markets Thriving

Date: January 3, 2025

Arafat Mir
Director, Global Head of Prospecting – S&P Global Market Intelligence

The global economy has been in a state of flux due to geopolitical tensions, supply-chain disruptions and rising inflation creating a volatile environment for traditional investors. This economic turbulence has spurred a global shift towards alternative financial markets like cryptocurrencies, commodities and forex – with investors seeking diversification, inflation protection, and decentralization. Alternative markets in Pakistan have followed the global trend, and offer a range of investment options and diversification benefits.

Rising inflation has eroded the purchasing power of the Pakistani Rupee. Precious metals like gold, historically viewed as a store of value, have been sought after as a hedge against inflation. Cryptocurrencies, also considered an inflation hedge, operate on decentralized blockchain technology, removing the need for intermediaries like banks. This decentralized nature appeals to investors who are wary of centralized financial systems and seek greater control over their assets.

Technological advancements have significantly lowered the barriers to entry for investing in alternative markets. Online trading platforms and mobile apps provide convenient access to a wide range of assets, enabling investors to participate from anywhere in the world. Large financial institutions like Black Rock, Morgan Stanley and JP Morgan have now entered the cryptocurrency market offering investors to gain exposure through Exchange Traded Funds (ETFs). This, coupled with the likelihood of U.S. President Donald Trump pushing crypto currencies to the mainstream has skyrocketed Bitcoin’s price to over $100K in recent weeks.

Pakistani investors are not immune to the global embrace of alternative financial practices. The country’s economic challenges, including high inflation and a depreciating currency, have driven many to seek alternative investment options.

While gold has long been a popular hedge against economic uncertainty, the Pakistani Rupee’s volatility against the US Dollar has led to increased trading in the forex market in recent years. Cryptocurrencies have also gained traction – 17% adult internet users in Pakistan reportedly own or have owned cryptocurrency. According to the 2023 Crypto Adoption Index, Pakistan ranks 8th in the world ahead of countries like Russia, China and the UK (India ranks 1st). This is likely because traditional investment options have higher barriers to entry for new investors.

One of the main reasons that investors find alternative investments like precious metals or cryptocurrencies a safer bet is because their long term performance is not linked to the economic and political situation in Pakistan. In the last five years (2020-2024), Bitcoin’s price has increased by 1200%; gold’s price has increased by 73%. Since their prices are globally pegged to the US Dollar, it provides Pakistani investors a hedge against depreciation of the Pakistani Rupee, as there has been close to a 100% increase in the US Dollar to Pakistani Rupee rate. Furthermore, it is no secret that there is a shortage of US Dollars in the open market, so a large subset of cryptocurrency traders are saving their money in a cryptocurrency pegged to the US Dollar called Tether (USDT).

This is a space to watch. The emergence of cryptocurrencies poses challenges for Pakistan to document and regulate its significant, cash-based, informal economy. While gold and forex are regulated, and are subject to taxation and anti-money laundering regulations, the current lack of clear regulations on crypto creates a grey area for both investors and businesses operating in this space. The government needs to develop a comprehensive oversight framework for cryptocurrencies that addresses these challenges, while promoting financial inclusion and innovation in the digital asset market.