In just a brief span of two years, Kazakhstan has witnessed a remarkable doubling of the population owning cryptocurrencies. From a mere 4% in 2022, it has surged to an estimated 8% in 2024, as revealed by the latest report on the digital assets market in Central Asia and the Caucasus conducted by RISE Research and Freedom Horizons. This significant growth showcases the evolving nature of the country's financial landscape.

Unraveling Kazakhstan's Crypto Journey

Digital Assets Market Insights

The report, supported by esteemed institutions like the Astana International Financial Centre (AIFC), the National Payment Corporation of Kazakhstan, Mastercard, and KPMG Caucasus and Central Asia, offers a comprehensive view of key trends, regulatory frameworks, and country-specific aspects in the digital assets market. It highlights how the crypto industry in this region has been steadily growing in line with the global trend, establishing a regulatory environment that nurtures both cryptocurrency trading and the development of new blockchain-based business models.

Freedom Horizons CEO Kairat Kaliev emphasizes, "The crypto industry in Central Asia and the Caucasus has been steadily growing, aligning with the global trend. The region has already established a regulatory framework that supports not only cryptocurrency trading but also the development of new blockchain-based business models."

Tax Revenue Growth in Digital Assets Sector

Tax revenues from Kazakhstan's burgeoning digital asset sector have shown remarkable growth in 2024. Licensed digital asset providers operating under the AIFC have contributed $367,000 in taxes over the first eight months of the year, compared to $275,000 in 2023. Additionally, crypto-mining activities have added $10.4 million in tax revenue over ten months and $16.4 million in 2023.

This growth indicates the increasing significance of the digital assets sector in Kazakhstan's economy and the potential it holds for further development.

Uzbekistan's Leadership in Cryptocurrency Adoption

Kazakhstan ranked 57th in the 2024 Global Crypto Adoption Index, showing a notable upward trend by moving up five spots. Uzbekistan, on the other hand, ranked 33rd, making a remarkable leap of 54 positions, demonstrating rapid progress in cryptocurrency adoption. Uzbekistan stands out as a standout performer in the Central Asia and Caucasus region.

The report notes that Kazakh citizens choose cryptocurrency assets due to the expanding value and popularity of cryptocurrency markets, their use as a means for long-term investment, and a belief in blockchain technology to promote transparency and financial inclusion. For others, the possibility of high yields, especially through decentralized finance, is a major attraction.

Profile of Cryptocurrency Investors in Kazakhstan

In the analysis, experts highlight the profile of cryptocurrency investors in Kazakhstan. The majority (83%) are men, with 17% being women. Most investors are aged 18-34 (83%), with 47% falling in the 25-34 age range. In terms of income, 78% are middle-income, 12% are high-income, and 8% are low-income.

This demographic profile provides valuable insights into the characteristics of cryptocurrency investors in the country.

Key Barriers to Cryptocurrency Market Development

Industry players surveyed in the report state that the development of the cryptocurrency market in Kazakhstan is hindered by poor integration with the banking system and the reluctance of second-tier banks to work with crypto firms.

Ainur Zhanturina, founder of RISE Research, explains, "According to our survey and interviews with market participants, the main barrier to the development of digital assets in Kazakhstan is limited access to banking services. Many banks are unwilling to work with companies in this sector, viewing them as higher-risk clients, which complicates transfers and account management."

Kazakhstan as a Major Bitcoin Mining Player

In October 2021, Kazakhstan emerged as a major player in Bitcoin mining. After China banned cryptocurrency mining in 2021, Kazakhstan became increasingly attractive for miners due to its cheap electricity and fewer regulations at that time. However, much of that mining was illegal.

The report notes that Kazakhstan was responsible for 27.3% of the global mining activity as of October 2021, making it the second-largest Bitcoin miner in the world after the United States. But with increased regulatory oversight, the market contracted to 4% in 2023.

Advanced Banking Sector in Kazakhstan

The report also emphasizes that Kazakhstan's advanced fintech sector, with its sophisticated banking services and digital payment solutions, is a key reason for the limited crypto market size in the country. High banking penetration, which was 81% in 2021, and widespread smartphone adoption at 83% in 2023 are complemented by a robust internet penetration rate of 92% as of 2024. Additionally, 89% of payments in the country are now cashless.

Fintech services in Kazakhstan are highly efficient. On average, opening a bank account online takes less than three minutes, while digital lending approvals are processed in just around two minutes. The government's GovTech initiatives enable composite services, such as purchasing and re-registering a car, to be completed online in under an hour.

Accelerating Adoption of Digital Assets

The report also highlights key global trends in the digital assets sector, demonstrating its significant growth and increasing institutional recognition. The cryptocurrency market cap has surpassed $2.7 trillion, with over 580 million users worldwide. Nearly half of global consumers have used or are open to using cryptocurrencies as a payment method, indicating a growing interest in retail adoption.

More than 60 banks globally have invested in blockchain projects, and 93% of central banks are exploring Central Bank Digital Currencies (CBDCs). Kazakhstan is among them. By 2030, over $10 trillion worth of real-world assets are expected to be tokenized, showcasing a significant shift toward institutional use of blockchain technologies.

Among 60 surveyed countries, 33 have legalized cryptocurrency, while 17 partially ban it, and 10 enforce a general ban. Among G20 nations, 12 have legalized cryptocurrencies, representing over 57% of global GDP. Regulatory frameworks are under discussion in all G20 countries.

Bitcoin, the digital currency that has been making waves in the financial world, reached a significant milestone on Wednesday when its price hit $100,000 for the first time. This surge comes in the wake of an election that saw victories for crypto-friendly candidates led by President-elect Donald Trump. Since November 5th, the price of bitcoin has seen an astonishing increase of more than 45%, and year-to-date, it has more than doubled. This six-figure mark is just the latest in a series of lucrative achievements for a currency that emerged 15 years ago from a brief whitepaper written by an unknown author, Satoshi Nakamoto. The ideas laid out in that paper have spawned an entire technological landscape dedicated to peer-to-peer transactions, including hundreds of other digital tokens, NFTs, and trading platforms.

Controversies and Challenges

Despite its remarkable growth, cryptocurrencies have remained controversial. Many, including bitcoin itself, have been linked to a rise in cybercrimes and scams. The FBI estimates that such activities were responsible for billions of dollars in consumer losses last year. This has prompted current federal regulators to adopt a skeptical view towards many cryptocurrency efforts. However, bitcoin advocates are hopeful that a new pro-crypto stance will take hold in Washington, ending strict regulation and enforcement against digital tokens. They envision a future where bitcoin investing is accessible to traditional financial institutions and where mining bitcoin becomes more profitable through increased energy production.

Trump's Crypto Interest

Trump, who was once a crypto-skeptic, has shown interest in creating a U.S. bitcoin "strategic reserve" modeled after those for gold and oil. During his third presidential run, he attended this year's Bitcoin Conference in Nashville, Tennessee, where he praised the crypto community for its innovation and vowed to make the U.S. the crypto capital of the world if elected. This shift in attitude could have a significant impact on the future of bitcoin.

Price Volatility and ETFs

Bitcoin's price movements are notoriously volatile, and experts believe that this is unlikely to change regardless of who is in office. However, in recent times, a large share of the demand fueling its growth has been directed towards exchange-traded funds (ETFs) that track the price of bitcoin and are operated by major financial institutions. BlackRock's iShares Bitcoin Trust ETF is the largest of these, having grown to a value of more than $45 billion since its launch in January. In just the past month, its value has increased by $4.1 billion. In addition to the electoral success of crypto-friendly candidates, Jacobs, BlackRock's U.S. head of thematic and active ETFs, attributes the growing interest in bitcoin to a broader trend. More investors across the wealth spectrum and around the world are seeing bitcoin as a hedge against geopolitical risks, especially currency devaluations triggered by inflation. With ETFs providing an easy-to-use way for investors to gain exposure to bitcoin's price movements, it is only a matter of time before mainstream interest in the cryptocurrency reaches a tipping point. "There's growing interest across the institutional or wealth-management space to learn, but it's always going to be a journey of education, and it takes time for that process to happen," he said.