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CryptoLatam: Navigating the World of Cryptocurrencies in Latin America

CryptoLatam: Navigating the World of Cryptocurrencies in Latin America

By Oreld Hadilberg
Reviewed by Tony Spilotro

Table of Contents

Introduction

In the digital arena, crypto assets shine as pioneers of a new era, challenging established norms. From the southernmost regions to the northern corners, millions of Latin Americans and Caribbean citizens opt for these assets as a modern and advantageous alternative for managing their finances.

Latin America faces significant economic challenges, marked by a pronounced wealth gap as per World Bank data. Economic disparity, exacerbated by factors such as informal labor and poverty, breeds frustration, violence, and distrust in governmental institutions.

In this context, the cryptocurrency industry emerges as a transformative agent, aiming to democratize access to financial services. These decentralized digital currencies offer swift, secure, and transparent transactions, challenging traditional systems that fail to meet the needs of the Latin American population.

Regulation of Cryptocurrencies in Latin America

Uruguay: In 2018, the Uruguayan Chamber of FinTech formed a Cryptocurrency Commission to establish a specific regulatory framework. In December 2022, a bill to regulate cryptocurrencies was approved by the Chamber of Deputies, awaiting enactment under the supervision of the Central Bank of Uruguay (BCU). The project includes virtual asset service providers under BCU supervision, imposing mandatory requirements for cryptocurrency companies.

Brazil: In 2022, Brazil enacted the Bitcoin Law, becoming one of the few countries with specific regulations. It establishes a federal agency to regulate crypto asset companies and grants licenses for "virtual services." The Brazilian Securities and Exchange Commission (CMV) will oversee digital assets deemed securities. Service providers have 180 days to comply and can only operate with government authorization.

Bolivia: In 2014, Bolivia became the first Latin American country to ban crypto assets, citing the lack of regulatory frameworks and associated risks. The Bolivian Central Bank reiterated the ban multiple times until 2022.

Mexico: In 2018, Mexico enacted the Fintech Law, obligating the Bank of Mexico to regulate cryptocurrencies. The law does not restrict cryptocurrency service providers but sets requirements for financial institutions utilizing the technology.

Paraguay: In 2021, the Senate approved a bill to regulate cryptocurrencies, aiming for legal and fiscal security. However, it was vetoed in 2022 and subsequently shelved due to dissensions in Congress.

Peru: The Peruvian Congress debates the Crypto Asset Marketing Framework bill. Although it doesn't prohibit cryptocurrency operations, there's a legal void in its regulation, and state entities warn about risks and money laundering.

Ecuador: In 2022, Ecuador enacted the Fintech Law to provide legal security to financial technology companies, excluding cryptocurrencies from the final text for fear of destabilizing the financial system.

Colombia: In 2021, the UIAF issued a resolution obligating exchanges to report transactions. In 2022, the Lower House approved a bill to grant autonomy to crypto asset users and establish regulations for exchanges.

Chile: In 2023, Chile enacted the Fintech Law to regulate financial services, including crypto assets. The Commission for the Financial Market (CMF) will oversee compliance, setting obligations for fintech companies.

Panama: In Panama, a crypto bill seeks to regulate bitcoin and ether, proposing their use as a global payment method. After modifications and vetoes, it remains a subject of debate and criticism.

Venezuela: In 2018, Venezuela sanctioned a decree to regulate crypto assets, creating entities like SUNACRIP. In 2022, the Tax Law was reformed to tax operations involving crypto assets.

El Salvador: In 2021, El Salvador became the first country to accept bitcoin as an official currency through the Bitcoin Law, establishing regulations and complementary measures for the ecosystem.

Argentina: Despite no central regulation, Argentina imposes taxes on crypto assets and requires reports. In 2022, a project was presented to declare non-disclosed assets.

Honduras: This year, Honduras adopted Bitcoin as a means of payment and settlement.

Factors Favoring Cryptocurrency Acceptance in Latin America:

According to the coinmap, currently Brazil, Argentina, Colombia, and Ecuador are among the countries with the highest cryptocurrency adoption.

  1. Inflation Issues: The region experiences widespread inflation, diminishing the appeal of conventional fiat currencies. Cryptocurrencies, with their limited supply, prove more resistant to inflation. In countries like Venezuela, with inflations surpassing 10,000%, cryptocurrencies emerge as a more attractive option for preserving value and conducting transactions.
  2. Political Instability: Cryptocurrencies provide a means of storing value without being subject to government intervention. Political instability is a common feature in the region, and in some countries like Venezuela and Nicaragua, the government has confiscated citizens' savings. Cryptocurrencies offer a way to circumvent this risk, as they are not controlled by any governmental entity.
  3. Financial Inclusion: Cryptocurrencies can offer opportunities to those lacking access to conventional financial services, enabling them to participate in the economy. Financial inclusion is a challenge in Latin America, where approximately 50% of the population lacks access to bank accounts. Cryptocurrencies provide an alternative for conducting financial transactions without the need for a bank account.

These factors have driven interest and adoption of cryptocurrencies in the Latin American region, providing solutions to the economic and political challenges faced by many of its inhabitants.

Benefits of Cryptocurrency Adoption in Latin America:

  1. Improved Quality of Life for Users: Adopting these currencies for exchange systems represents a scenario of free access where, not being tied to the economy or politics of a country, they can be transferred to any individual or entity anywhere on the planet instantly; it is a global currency.
  2. Business Opportunities: Cryptocurrencies offer business opportunities due to their volatility; their prices can vary significantly from one day to another, providing a high-risk asset with high returns.
  3. Decentralization: In contrast to traditional currencies, cryptocurrencies are "decentralized," meaning they are not regulated by any governing body. They operate 24/7 on different global exchanges.
  4. Transparent Transactions: Transactions and operations with cryptocurrencies are recorded in a shared ledger that provides accurate information to the sender, ensuring security and confidence for continued operations.
  5. Infrastructure Cost Reduction: The infrastructure costs for banks could decrease by $15-20 billion by 2022, redirecting that money to improve digital mechanisms and implement large-scale models. Considering that over 20% of financial service companies are FinTech, improving their conditions is highly necessary post-pandemic.

The Growth of Cryptoasset Companies in Latin America

Amid the "global boom in digital transactions," cryptoasset platforms in Latin America and the Caribbean have experienced significant growth, more than doubling since 2016 and reaching over 170 active companies by 2022, according to a report from the Cambridge Centre for Alternative Finance (CCAF) and the Inter-American Development Bank (IDB). The document, titled "Cryptoasset Ecosystem in Latin America and the Caribbean," highlights that these companies are evolving into comprehensive financial technology (fintech) providers, serving as one-stop shops for investors, consumers, and businesses.

The report, based on responses from 52 private sector companies and 31 public institutions in the region, notes that approximately 100 companies have their operational headquarters or parent organization established in Latin America.

Regarding the distribution of these fintech cryptoasset companies in the region, the report emphasizes its uneven nature, although there is a concentration in the economic centers of Brazil (15), Argentina (11), and Mexico (10). Additionally, exotic destinations such as the British Virgin Islands and the Cayman Islands also appear on the list of countries where cryptoasset companies have been established, likely due to the tax benefits they offer to these entities.