Crypto in South America: A Map of the Region’s Regulatory Landscape

Buenos Aires — Latin Americans are following the movements in the prices of the main cryptocurrencies more and more closely, while new uses of the assets continue to emerge, all of which has brought crypto assets under the regulatory scrutiny of the region’s governments.

Regulatory frameworks for crypto differ across Latin America, ranging from full adoption to rejection and prohibition.

“The only country that has authorized its use is El Salvador, where Bitcoin is recognized as legal tender,” according to Worldsys, a company that develops solutions for regulatory compliance and money laundering prevention.

In contrast, there is the case of Bolivia, whose Central Bank has taken the decision to prohibit the use and commercialization of cryptocurrencies, making such means of payment for the purchase and sale of products and services illegal in the country. And until recently, Ecuador had a similar stance.

“The adoption of cryptocurrencies is growing year on year, encompassing all industries and productive sectors. There are more than 300 million crypto users worldwide, equivalent to 3.9% of the world’s population,” according to Javier Madariaga, executive director of NGO Bitcoin Argentina.

“Four Latin American countries, including Argentina, are among the 20 countries with the highest adoption worldwide,” Madariaga told Bloomberg Línea in an interview. “Individuals have found in decentralized technologies a better model, and the public sector is becoming increasingly aware of this”.

While there are more and more companies that accept crypto as a payment method, savings in cryptocurrencies are also gaining ground, mainly in those countries where their own currency is not so strong or where there are more pronounced inflation problems.

According to data from the consulting firm Focus Market, taking last March’s Inflation in Argentina as a reference, six of the 10 cryptocurrencies surveyed had a positive real return against Inflation during the same period.

“Despite the volatility that cryptocurrencies have seen in March, Argentines continue to find greater value refuge in crypto assets than in the Argentine peso,” Madariaga says, and calculates that “they [cryptocurrencies] beat the parallel dollar quotation that fell 5.25%” over that period.”

Crypto in Argentina

Although there are initiatives in the country to take steps toward regulation, no significant progress has been made on the issue. However, new controls are expected, in line with the requests of the International Monetary Fund (IMF) to prevent money laundering and, in addition, to strengthen tax collection to meet the fiscal deficit target.

A bill proposing regulation has been presented by deputies of the ruling Frente de Todos coalition, while another draft bill has been proposed by a deputy of the opposition Juntos por el Cambio, and which has the support of several cryptocurrency exchanges in the country.

“We know that the trend indicates that we are heading towards regulation, so we are working to make it ‘crypto-friendly’ and a result of the consensus of all members of the crypto ecosystem,” Madariaga says.

“We understand that any regulation must be oriented to enhance and not hinder the opportunities inherent to the crypto economy,” he adds.

In turn, Worldsys states: “despite the fact that there is still no regulation of cryptocurrencies or a central supervisory body, fiscal control has begun to be exercised. Following the governmental decree 796/2021, companies that carry out transactions with cryptocurrencies are taxed under the bank credits and debits tax”.

However, “the tax is not levied directly on the final buyer, but on the collecting accounts of the wallets that carry out the operation”, the company said.

“Local exchanges, as well as payment service providers, are obliged to submit information monthly on their transactions,” the company said, clarifying that operations carried out in cryptocurrency are also subject to income tax, since the law considers the result of the purchase and sale of digital currencies as profit.

However, Madariaga clarified that not all cryptocurrency holders must pay taxes.

“Today the minimum amount subject to personal property tax is six million Argentine pesos ($52,245), and those who own cryptocurrencies for less than that value are exempted from paying that tax, without entering into the current debate as to whether or not these assets are tangible goods,” he explains.

Progress in Brazil

Four bills have been presented in Brazil for the regulation of cryptocurrencies, whose common objective was the obligation to comply with the country’s anti-money laundering law and to apply the consumer protection code to the crypto sector, according to Worldsys.

The latest proposal was presented this year by a Social Democratic Party senator, and which unifies all the previous initiatives and seeks to provide transparency to crypto operations and avoid both tax evasion and money laundering.

According to the proposal, the Brazilian government will be in charge of regulating the use of cryptocurrencies. If approved, Brazil will be the largest cryptocurrency regulator in Latin America.

Chile’s Bitcoin Bill

A Bitcoin bill was presented to Congress in late 2021 that aims to generate a safe environment and provide protection for both the owners of crypto assets and financial intermediaries, as well as for those who interact with the digital currency market.

The initiative proposes that Chile’s Central Bank would be the body responsible for regulating cryptocurrencies, according to Worldsys.

A Colombian Sandbox

In the case of Colombia, the country’s financial supervisory body, or superintendency, has given the green light to the creation of a regulatory sandbox with the aim of experimenting with and studying a series of regulations for cryptocurrencies.

“Regulatory sandboxes are controlled spaces where pilots of new business models that are not yet regulated are developed. According to the Financial Superintendency, this generates a joint learning space between the digital ecosystem and the national government in order to deepen knowledge about crypto assets,” according to Worldsys.

At the same time, in December 2021, the country’s Financial Information and Analysis Unit (UIAF) issued a resolution by which cryptocurrency exchanges are obligated to report the transactions of their users, with all transactions with Bitcoin with a value of above $150 required to be registered from April 1.

The Debate in Peru

Peru’s Congress has begun a debate on the draft framework law for the trading of crypto assets, and which proposes the creation of a public registry of crypto service providers, and the obligation to report “suspicious operations” to the country’s financial intelligence unit.

However, the legislator who presented the initiative said it does not aim to make cryptocurrencies legal tender, as they have become in El Salvador.

The Case of Uruguay

Following the creation of a cryptocurrency commission in 2018 by the Uruguayan FinTech Chamber, in 2021 the central bank (BCU) created a working group dedicated to studying the topic, and following which a document with further details of a possible regulatory framework was released.

In early April, the BCU stated that it will this year submit a project to the executive branch that will aim to regulate at least part of the virtual assets market.

“This year we will be working and the central bank will surely propose a project related to the legal empowerment of regulation and supervision of these providers, because today it is not within the framework of attributions of the central bank”, according to the BCU’s head of financial services, Juan Pedro Cantera.

Translated from the Spanish by Adam Critchley