Summary
- The IMF reported a significant increase in cryptocurrency activity in Nepal from 2019 to 2024, surpassing 13% of GDP in 2021 despite a ban.
- It recommended that Nepal implement regulations in line with international standards to prevent capital flight and manage deposit outflows.
- According to an expert, trading and remittances sustain cryptocurrency use in prohibited markets, suggesting that regulation is more effective than outright bans.
Despite a ban on cryptocurrencies, their presence persists in Nepal.
In a report published on Tuesday, the International Monetary Fund (IMF) highlighted a surge in cryptocurrency adoption in Nepal, urging the government to closely monitor the sector to maintain financial stability and limit illegal activities.
The IMF noted that, "The flow of stablecoins and unbacked crypto assets saw substantial growth from 2019 to 2024, although overall adoption remains relatively low compared to other countries, despite the legal prohibition on crypto transactions." They stressed that the situation in Nepal "requires careful observation."
This observation was included in the Fund's 2026 Article IV Consultation, which coincided with the conclusion of the seventh and final review of Nepal's Extended Credit Facility on June 5.
Nepal prohibited all cryptocurrency transactions in 2021, with the central bank declaring trading, mining, and all associated activities illegal.
In 2020, cryptocurrency inflows were minimal but soared to over $2.6 billion in 2021, momentarily exceeding 13% of GDP, as per IMF data.
By 2023, this volume decreased to around 4% of GDP before recovering to about 8% in 2024, with stablecoins accounting for a significant and increasing portion.
Regarding cross-border transactions, the IMF estimated that Nepal's crypto activities represented approximately 5% of GDP in early 2025, trailing behind Vietnam's 26% but ahead of Bangladesh and Myanmar.
The IMF advocates for a regulatory framework that aligns with global standards, stating it "would help ensure financial stability and consumer protection while minimizing the circumvention of capital controls and large-scale deposit outflows."
The organization also urged Nepal to complete a Financial Action Task Force action plan to exit the watchdog's grey list.
Musheer Ahmed, founder and managing director of Finstep Asia, commented to Decrypt that the debate on banning versus regulating crypto stems from a misunderstanding.
"The technology itself is unregulated. However, its applications can be regulated," Ahmed stated, noting that nations that have restricted or banned crypto are still exploring tokenization opportunities involving real-world assets and traditional finance.
He emphasized that the applications that remain active, such as trading and remittances, are crucial for regulation.
"Regarding trading, it makes sense to establish regulations" for the protection of consumers and investors, he added, emphasizing the need for regulators to balance oversight of international payment systems with concerns about monetary risks and capital controls.
IMF's Stance on Cryptocurrency
The IMF has long urged governments to regulate cryptocurrency, with El Salvador being a notable example, as the country scaled back its Bitcoin initiative in December 2024 to secure a $1.4 billion fund facility.
A spokesperson for the Fund insisted that purchases had ceased, asserting that "the total amount of government-owned Bitcoin has not increased, and the rise in the Bitcoin Reserve Fund is due to movements within government wallets," as previously stated to Decrypt.
Contrarily, El Salvador’s President Nayib Bukele maintains the country continues to acquire one Bitcoin daily, claiming via Twitter, "No, it's not stopping…..it won’t stop now, and it won’t stop in the future."
Blockchain data indicates that El Salvador's wallets appear to increase by about 1 BTC daily, although analysts argue that public records cannot definitively show whether these are new purchases or previously owned coins being transferred through exchanges.
"I don't believe the El Salvador experiment has a significant effect on either side," Ahmed commented, adding that while it has raised the country's profile in the virtual assets space and attracted crypto investments, the limited uptake indicates Bitcoin is viewed more as an asset than a currency.
He noted that real progress is being made in payment systems, particularly in the use of stablecoins, which are gaining considerable popularity.
As Nepal continues to recover from the protests led by Gen Z in September that resulted in the ousting of the Oli government and the establishment of an interim administration under former chief justice Sushila Karki, the IMF's warning comes at a crucial time.
The unrest followed the government's ban on 26 social media platforms on September 4, which incited young Nepalis to protest ahead of one of the most severe crackdowns in recent years.
This ban backfired, leading to tens of thousands of Nepalis downloading Jack Dorsey's decentralized messaging app Bitchat, which operates over Bluetooth and mesh networks without requiring internet access or accounts.
China subsequently ordered the app removed from its App Store due to concerns over its capability to facilitate "social mobilization."
The IMF stated it will continue to engage with Nepal through ongoing assessments and yearly Article IV consultations, with crypto regulation now on the agenda.
Decrypt has reached out to the IMF for further comments.