Crypto cold war heats up: As Pakistan, Bhutan, and US go all in, where does India stand? Report reveals how the world is weaponising blockchain

In the evolving battle for digital dominance, cryptocurrency has emerged as more than just a financial experiment, it is now a tool of diplomacy, economic survival, and geopolitical manoeuvring.

According to an ET report, countries from Pakistan to Bhutan, the US to the UAE, are embedding crypto into their national strategies.

But amid this global pivot, India remains cautious, caught in a regulatory limbo that experts say is increasingly risky.

Pakistan’s crypto push: Strategic ties and suspicious timing

Weeks before the Pahalgam terror attack, Changpeng Zhao, founder of Binance, agreed to advise the newly-formed Pakistan Crypto Council (PCC). In July, President Asif Ali Zardari signed an ordinance setting up the Pakistan Virtual Asset Regulatory Authority (PVARA), allowing the country to license and regulate crypto entities.

The move coincides with Pakistan's deepening ties to World Liberty Financial (WLF), a Trump-linked crypto firm.As ET notes, Pakistan is using crypto not just to attract investment but to gain currency with Washington. This could explain the US’s relatively muted stance on Pakistan during Operation Sindoor. “Crypto is becoming a channel for strategic financial flows for Pakistan,” Anirudh Suri of India Internet Fund told ET.

He warns that this strategy poses a threat to India’s attempts to cut off terror financing through global agencies like FATF and IMF.

India’s position: Still undecided, still unclear

Despite multiple reminders from the Supreme Court, India is yet to clarify its stance on cryptocurrency. In a hearing in May, the apex court asked why the Centre had not produced a clear policy. The Reserve Bank of India remains sceptical, citing concerns over monetary stability, while SEBI has reportedly suggested multi-agency oversight.As ET highlights, India currently levies a 30% tax on crypto gains and 1% TDS on larger transactions, while exchanges are required to register with FIU-IND. Yet, a promised discussion paper outlining a national crypto framework, expected in June, is still awaited.Meanwhile, the use of crypto in terror financing is reportedly on the rise. Following the Pahalgam attack, FIU instructed exchanges to monitor transactions from Jammu and Kashmir, specifically scrutinizing private wallets and privacy coins, ET reported.

Bhutan’s bitcoin reserves: Small state, bold bet

While Pakistan’s crypto strategy raises alarms, Bhutan presents a very different model. As per ET, the Himalayan kingdom has mined over $1.3 billion worth of bitcoin, nearly 40% of its GDP, using surplus hydropower. Bitcoin now supports Bhutan’s public spending, tourism projects, and even salary hikes for civil servants.Although India supports Bhutan’s economic diversification, ET notes concerns about reduced hydropower exports and the country’s increasing reliance on Chinese bitcoin mining gear.

Companies like Adani are exploring data center opportunities there, which could shape bilateral ties going forward.

Trump, stablecoins and the blurred lines of power

In the US, the GENIUS (Guiding and Establishing National Innovation for US Stablecoins) Act is set for a vote. It aims to regulate stablecoins like USD1, launched by Trump’s firm, World Liberty Financial. According to ET, Trump earned $57.4 million in 2024 from this venture, sparking allegations that the act could enable political favours for investors.An Abu Dhabi-based fund has already pledged $2 billion in USD1 for Binance. Experts quoted by ET worry that countries like Pakistan may exploit these loopholes to regain favour with the US. Subimal Bhattacharjee, a cybersecurity expert, warns this could undermine global financial norms under the cover of policy.

What India must do - before it falls behind

Experts say India must act quickly. “Crypto doesn’t really listen to borders,” Ananya Kumar of the Atlantic Council told ET.

“It’s not a domestic issue, it’s a global one.” Jaideep Reddy of Trilegal added that crypto lacks legal clarity under India’s securities, foreign exchange, and tax laws, creating confusion for both businesses and consumers.ET also highlights concerns over capital flight via dollar-backed stablecoins. Regulating such flows while enabling legitimate innovation is critical, say experts.As the Supreme Court presses for answers and neighbours surge ahead with defined policies, India faces a stark choice: lead with a robust, transparent crypto strategy, or risk being outpaced and outflanked in the new digital order.