Kazakhstan is betting on regulatory control to build a credible crypto market

Once a go-to destination for Bitcoin miners, Kazakhstan is now repositioning itself as a regulated hub for digital assets. But beneath the progress lies a complex balancing act – how to encourage innovation without losing control.

In 2021, Kazakhstan quickly rose to become the second-largest Bitcoin mining country in the world. An exodus of digital miners from China, driven by prohibitions and crackdowns, led many to Kazakhstan’s doorstep, attracted by cheap electricity and minimal regulations.

At its peak, the country accounted for over 27 per cent of global Bitcoin mining.

However, this rapid influx strained the national power grid and exposed gaps in legal oversight. Illegal mining operations became widespread, prompting the government to tighten its grip.

By 2023, new regulations dramatically scaled back mining activities, reducing the country’s global share to four per cent and signalling a shift from uncontrolled growth to managed development.

A digital economy

In response to capital flight and unregulated transactions – estimated at around $15 billion in crypto outflows – Kazakhstan’s National Bank is working on a new legal framework to bring the digital asset market under state control.

This includes clearly defining the legal status of digital financial assets and introducing licensing requirements for service providers handling unsecured cryptocurrencies.

The country is also establishing a sandbox environment for piloting innovative blockchain projects and digital services.

Crypto banks are also being considered as part of this ecosystem, designed to provide integrated services such as digital asset exchange, storage, and transaction support within a regulated setting.

Structural challenges in a growing market

The number of crypto users in Kazakhstan has doubled over the past two years, reaching eight per cent of the population in 2024.

Licensed exchanges now operate under the Astana International Financial Centre (AIFC), with 11 platforms offering access to 112 cryptocurrencies and over 140,000 registered users.

Trading volume reached $815 million between January and October 2024.

Yet despite this momentum, structural barriers persist. Chief among them is the disconnect between the crypto sector and the traditional banking system.

Many banks remain reluctant to work with crypto firms, viewing them as high-risk clients. This limits access to essential financial services, constraining the development of digital asset businesses.

Adding to the paradox is Kazakhstan’s advanced fintech sector. With widespread mobile banking, rapid digital lending, and government-backed GovTech platforms, many citizens already enjoy seamless digital financial services.

In this environment, the necessity of crypto solutions for the everyday user becomes less compelling.

A regional rivalry

Kazakhstan’s measured approach contrasts with Uzbekistan’s rapid embrace of cryptocurrencies. In 2024, Uzbekistan leapt 54 places in the global crypto adoption index to rank 33rd, while Kazakhstan advanced more modestly to 57th.

The difference underscores two divergent strategies: Kazakhstan prioritises institutional control and regulatory structure, while Uzbekistan favours broader retail adoption.

This regional competition adds urgency to Kazakhstan’s reform efforts. As Central Asia emerges as a digital battleground, today’s regulatory choices could shape long-term economic influence and investor confidence.

Fostering local talent

But beyond regulation and trading platforms, the future of crypto in Kazakhstan will depend heavily on human capital. The sector is currently dominated by young male investors, with 83 per cent aged 18-34.

As crypto banks and blockchain projects gain momentum, the demand for professionals in compliance, blockchain analytics, and anti-money laundering is growing rapidly.

However, there is limited visibility on how Kazakhstan is nurturing this talent pipeline. Without targeted educational initiatives and support for blockchain startups, the country risks constructing a regulatory shell without the innovative core required to sustain it.

Keeping pace with global trends

Kazakhstan’s digital asset strategy is unfolding against the backdrop of a booming global market. With the cryptocurrency market cap surpassing $2.7 trillion and over 580 million users worldwide, institutional adoption is accelerating.

The country’s regulatory approach echoes European efforts to prioritise consumer protection and market stability.

However, Kazakhstan distinguishes itself with continued support for its mining sector – allowing major operators to build independent power sources – in contrast to many European nations where environmental concerns have led to mining restrictions.

While the new rules may prove burdensome for small businesses and startups, the establishment of clear legal parameters could pave the way for growth and attract long-term investment.

Revenue from cryptocurrencies in Kazakhstan is projected to reach $101.4 million by 2025, with the number of users expected to surpass 923,000 within this year. These trends position the country as a serious contender in Central Asia’s digital economy.

If Kazakhstan can strike the right balance between regulation and openness, it may yet become a model for crypto governance, both in the region and beyond.

[Edited By Brian Maguire | Euractiv’s Advocacy Lab ]