The Taliban Crackdown Freezes Afghanistan’s Crypto Market

The Taliban ban on digital currency has brought Afghanistan’s cryptocurrency market, which experienced a massive expansion after the insurgent group took over the country in August last year, to a standstill – says a new study by Chainanalysis.

Afghanistan TalibansThe Taliban were initially considering riding the crypto wave too. (Photo: U.S. Department of Defense/Lt. j. g. Joe Painter/RELEASED, Flickr, License)“Afghanistan placed 20th in our 2021 Crypto Adoption Index, but since the Taliban’s takeover last August, has fallen to the bottom of the list,” Chainanalysis said.

This comes two months after the regime imposed a nationwide cryptocurrency ban, subsequently arresting a number of digital token dealers who refused to comply.

Although Afghanistan’s low internet access and unreliable electricity supply are not particularly favourable for crypto activity, the Taliban takeover last summer still triggered a small digital currency revolution.

Upsurge in crypto use was driven by the exclusion of Afghanistan from the global financial system after Taliban fighters captured the capital of Kabul.

In the most severe hit, the SWIFT system, underpinning international financial transactions, was suspended in the country. In addition, the U.S. froze the Afghan central bank’s reserves – bringing about an effective paralysis of the local banking sector.

Afghans, unable to receive remittances from their relatives abroad or even conduct domestic transfers, therefore, resorted to crypto-based alternatives. One of the Afghan phone crypto cash transfer apps, HesabPay, for example, had 380,000 active users in March just three months after it was launched.

Even the Taliban were initially considering riding the crypto wave.

In February, the group said it would study whether cryptocurrencies can be compatible with Islamic financial practices – as a part of efforts to find a solution to the destructive liquidity crisis. It, nevertheless, concluded that cryptocurrency was sinful – notably for its perceived proximity to gambling.

Chainanalysis also noted a possibility that a portion of the increased crypto purchases were used to launder proceeds from Afghanistan’s opioid and methamphetamine production, citing an anonymous source who indicated this was the case. However, there does not seem to be more evidence to support this hypothesis.