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Crypto Regulations - The South American Way
South America, home to over 440 million people across twelve nations and three territories, comprises roughly 5.47% of the global population. Yet, when discussions turn to cryptocurrencies, attention predominantly shifts to the Western World and the emerging Asian economies. This oversight is surprising, given that South America is leading the charge in digital currency adoption and pioneering central bank digital currencies (CBDCs).
Argentina, Brazil, Colombia, and Ecuador notably rank among the top 20 nations for global cryptocurrency adoption. The rise of crypto in South America isn't just about global rankings - it's deeply rooted in pressing economic challenges.
The continent grapples with high inflation, increasing social unrest, waning trust in public institutions, and stagnant job and economic growth. For instance, Venezuela is suffering from hyperinflation that has left its currency worthless, catapulting cryptocurrencies to a favored position in the nation and shedding light on similar trends throughout the region.
Crypto Adoption in South America
Taking a closer look at South America's stance on crypto, it's clear the region is not just active but thriving. The 2022 Global Crypto Adoption Index by Chainalysis echoes this sentiment: Brazil is positioned at the 7th spot, followed by Argentina at 13th, Colombia at 15th, and Ecuador rounding off at 18th. The figures paint an interesting narrative.
South American nations, in fact, boast higher crypto adoption rates per capita than some of the most developed economies, including the likes of the US and EU. This perspective is further emphasized by Statista's findings: Argentina leads with crypto ownership of 21%, trailed by Colombia at 15%, Chile at 14%, and Peru and Brazil both at 13%. In contrast, economic titans such as the US could muster only 10%, Russia 8%, China 7%, Germany 7%, and Japan at a mere 4%.
It's evident there's a solid demand for cryptocurrencies in these nations, particularly showcased by the surge in peer-to-peer (P2P) usage.
To contextualize this momentum, the International Monetary Fund's February 2023 report highlights several catalysts: the allure of efficient cross-border transactions, the appeal of crypto as a bulwark against hyperinflation, challenges stemming from fiat currency depreciation, and the overarching need to navigate strict capital controls. These elements, in tandem, underline the region's steady pivot towards crypto assets.
Crypto Regulations in South America
South America has been at the forefront of crypto adoption, yet it lacks a region-wise comprehensive regulatory structure like the European Union's Markets in Crypto Assets Regulation (MiCA). As such, crypto regulation diverges widely across the region, ranging from crypto acceptance to prohibition.
Looking into the latest major developments in South America’s crypto regulatory landscape, we can easily identify trends emerging in this region.
Amidst an escalating annual inflation rate of 116%, its highest in over three decades, Argentina finds itself at a crossroads. Interestingly, this financial turbulence coincides with the rise of pro-Bitcoin presidential candidate Javier Milei.
This isn't surprising, given an interest rate of 118%, unpredictable currency fluctuations, strict capital controls, and a general wariness towards the government. In this climate, approximately 12% of the population is adopting crypto.
Buenos Aires even facilitates tax payments via crypto.
However, the nation's engagement with crypto doesn't stop at usage. Argentina is also a significant hub for Bitcoin mining. And while the central bank maintains a cautious stance on cryptocurrencies, public regulators are more optimistic. They have expressed interest in fostering the growth of the crypto sector and building a structured regulatory environment.
As the landscape evolves, Argentina is all set to roll out new crypto rules, aligning with IMF's strategies to counter money laundering.
In the case of Bolivia, the country’s central bank has prohibited the use and commercialization of crypto assets, making such means of payment for the purchase and sale of products and services illegal in the country.
However, recently, Bolivian National Deputy Mariela Baldivieso spearheaded an initiative to legalize cryptocurrencies in Bolivia by introducing a proposal to lift the current ban on crypto assets. The proposal urges the Ministry of Economy and Public Finance to establish regulatory norms and “embrace new technologies as a transformative opportunity to strengthen our economy, promote financial inclusion, and open the doors to technological innovation.”
The 10th largest economy globally with an inflation of 4.65%, Brazil is the 5th largest crypto market in the world. Approximately 7.8% of its citizens are now crypto owners.
What's more, their trading activities have been bustling. Only in 2022 alone, they transacted a staggering $11.4 billion in stablecoins. The primary drivers that have motivated Brazilians to turn to cryptocurrencies are price speculation, their purported role as a reliable store of value, and streamlined international remittances.
Taking note of this momentum, in June 2023, Brazilian President Luiz Inácio Lula da Silva t endorsed a decree, carving out a solid legal foundation for the country's burgeoning crypto economy. This legislation entrusts the central bank with the mandate to keep a keen eye on virtual asset service providers, known in industry parlance as VASPs.
And for those tokens that parallel securities? They remain under the oversight of Brazil's Comissão de Valores Mobiliários, or CVM, akin to the US's SEC. It doesn't end there.
The central bank, in tandem with payment giants like Visa and Mastercard, is gearing up to roll out a pilot for their own digital currency: the digital real.
Chile has a small but rapidly growing crypto market, with around 2.6% of the population owning crypto. The country has a thriving P2P trading market and perceives crypto positively, with 36% of Chileans in favor of crypto being recognized as an official kind of currency. There’s also the possibility of a Digital Chilean Peso.
Currently, there is no formal regulatory framework, but tax guidance is available for those trading digital assets or those doing business in virtual assets. Under Chile’s tax guidelines, crypto assets are classified as virtual assets, which are not considered securities or foreign currencies, which means investors need to pay capital gains taxes.
The nation has been debating a “Bitcoin Law,” which was presented to Congress in late 2021 and aimed to generate a safe environment and provide protection for involved parties while making the central bank responsible for regulating cryptocurrencies.
This country, home to hundreds of crypto ATMs, is the 4th largest crypto market by volume for P2P trading worldwide. It is estimated that 6.1% of its citizens own cryptocurrency. This adoption is due to strict taxation policies for crypto within Colombia and a lack of regulatory clarity for exchanges and crypto businesses.
In Dec. 2021, Colombia's Financial Information and Analysis Unit mandated cryptocurrency exchanges to report user transactions. Notably, all Bitcoin transactions above $150 were required to be registered after April 1, 2022.
The nation has also created a regulatory sandbox, a pilot program that enables exchanges to interoperate with banks. But it hasn’t been the most successful due to the 40% of the population being unbanked.
Interest in cryptocurrencies is clearly rising in Ecuador, with 2.73% of its residents now holding such assets.
Ecuador, which operates its own electronic money system anchored to its official currency, the US dollar, has set firm rules for the crypto scene. Although the National Assembly once outlawed Bitcoin, it has since revised its position, as it clarified: while cryptos aren't official payment methods, buying and selling them remains legal.
In Guyana, cryptocurrency regulation is still in its infancy. Even so, the government is actively laying the groundwork for a regulatory framework. As part of this initiative, they have established a task force dedicated to studying the crypto landscape, aiming to both regulate the industry and safeguard investors.
Building on that, the Library of Congress pointed out in November 2021 that although Guyana places restrictions on certain cryptocurrency activities, there isn't a complete ban. Furthermore, the sector remains untouched by tax laws and measures against money laundering and terrorism financing (AML/CFT).
Paraguay is yet another crypto-friendly nation where crypto is widely used in everyday life. However, in Dec. 2022, Paraguay failed to pass a bill that would have regulated crypto and mining. The bill titled “Regulating the industry and marketing of virtual assets — crypto assets” was approved only to be vetoed later by President Mario Abdo Benítez.
This comes at a time when some of the world’s largest Bitcoin miners have set up operations in Paraguay, having been attracted by the cheap energy rates it offers.
Much like Argentina, Venezuela, and Colombia, inflation is the primary driver of crypto and stablecoin adoption in Peru. And although its annual inflation has eased somewhat in July 2023 at 5.88%, it is still above the central bank's target band of 1%-3%. Political turmoil is another factor that has led to Peruvians buying crypto as a hedge against financial crisis.
The country has been taking a slower approach to adopting a regulatory framework. Only recently, it has begun debating the creation of a public registry of crypto service providers that aims to report what it terms “suspicious operations.” Profits from trading crypto, however, are taxed.
Cryptocurrencies are not regulated by the law in Suriname, and there are no mechanisms to regulate their use or tax the income derived from them. However, trading and investing in crypto assets is possible through P2P and crypto exchanges.
Located in the northern part of South America, Suriname is one of three carbon-negative countries in the world, seeing growing interest in crypto among its citizens with a couple of projects looking to connect its indigenous communities with global markets through crypto.
In Sept. 2022, Uruguay's executive branch submitted a bill to Congress to give the country’s central bank legal powers to regulate crypto. The bill proposes to treat crypto assets as securities that can only be issued by a registered entity per the laws and regulations. It further aims to create a new category of companies for Virtual Asset Service Providers (VASPs) and seeks to amend the organic charter of the Banco Central Del Uruguay or Central Bank of Uruguay (BCU) and put VASPs under the supervision of the Financial Services Superintendence.
The country’s central bank has started working on a plan to lay the foundation for regulating cryptocurrencies and companies that provide related services. For now, however, there is no explicit tax regulation in Uruguay for cryptocurrencies.
With its national currency, the Bolivar, depreciating more than 100,000% from 2014 to 2022, Venezuela has been pro-crypto for a while now. Over the last few years, Venezuela formed the national crypto department, created a framework for crypto mining, institutionalized the registration of crypto exchanges, and in 2021, launched its own cryptocurrency called The Petro.
But challenges arose when people accused the country's crypto regulator of corruption. This controversy led to the arrest of the Superintendent of Cryptoassets, Sunacrip. Subsequently, Anabel Pereira Fernández, a lawyer who served as president of the Fondo de Garantía de Depositos y Protección Bancaria, the Venezuelan version of the United States Federal Deposit Insurance Corp, took the reins and closed multiple crypto exchanges and mining farms. The national crypto group, Asociación Nacional de Criptomonedas (Asonacrip), opposed her decisions, emphasizing that private enterprises shouldn't bear the brunt of internal regulatory issues.
José Ángel Álvarez, Asonacrip's president, conveyed his concerns about the indiscriminate crackdown on mining farms, especially those fully compliant with required permits. And while the organization respects the need for a thorough anti-corruption probe, Asonacrip urged a more nuanced approach that doesn't hamper the nation's burgeoning crypto infrastructure.
A perfect storm of challenges—weak national currencies, climbing inflation, political upheavals, capital restrictions, large unbanked populations, and a surge in remote work—has set the stage for crypto's broad acceptance in South American nations.
While some countries have not yet specified any laws regarding crypto, most economies are contemplating regulation as the adoption of crypto assets continues to rise. A few countries have made significant advances toward establishing a regulatory framework, particularly those with the highest crypto adoption.
Across South America, legislation to oversee crypto has entered the discussion phase, each at varying progression levels. Yet, a unified and all-encompassing set of standards remains elusive, making it challenging to both harness crypto's advantages and mitigate its associated risks.
Numerous countries in this region are taking strides to bring crypto under the rule of law, but the journey stretches far ahead. The future—whether crypto emerges as an economic catalyst or a conduit for corruption—hinges on the decisions South American legislators make in the coming years.
Ironman’s Adventure in South America
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