Latin America's Moves to Regulate Cryptocurrency Industry

According to the 2022 cryptocurrency market research conducted by Chainanalysis, Latin America is the second largest region of the world after the Middle East & North Africa for year-over-year cryptocurrency transactions volume growth rate, with Brazil, Argentina, Mexico, Colombia, and Honduras being most active countries in terms of transactions volume.

In 2022, several Latin American countries have announced or already made certain legislative moves in one way or another aimed at the cryptocurrency industry. 

For instance, this spring, Panamanian legislators passed a bill on the definition of cryptocurrency, the provision of services in this sphere, and its use as a payment method. Under the proposed regulations, cryptocurrency will be allowed to be used as a means of payment for individuals and businesses in Panama.

Similar processes took place in Paraguay, where Congress approved a bill regulating cryptocurrency-related activities, including, but not limited to, mining, trading, transfer, custody, and administration of cryptocurrencies. The regulations will apply to both individuals and businesses if they become law.

Some states are exploring and testing cryptocurrency-associated business processes via local initiatives. For example, Santa Lucia, a popular tourist town in Honduras, started accepting payments in bitcoin. The initiative is part of the so-called Bitcoin Valley, a program developed by Santa Lucia’s local government to increase tourism revenue across a number local businesses. According to reports, businesses will get relevant training on how to start accepting cryptocurrency as a means of payment. The program is akin to Guatemalan Bitcoin Lake, a local initiative around Lake Atitlan in the Sierra Madre Mountains, a popular tourist destination. 

In Argentina, in Mendoza province, it was allowed to pay taxes and governmental fees using cryptocurrencies. This initiative is part of the Buenos Aires digitization program, under which the capital city also started to accept public financial transactions in cryptocurrency. The use of blockchain by Buenos Aires won’t be limited to payments only: it will encompass the use of distributed ledger technology as a database for storing individuals’ digital IDs and personal information.

Arguably, one of the most prominent and recent developments in the cryptocurrency industry in Latin America was the signature of the cryptocurrency regulation bill by the president of Brazil last week. The new law legalizes cryptocurrency payments for goods and services but does not grant them legal tender status. This will allow financial institutions in Brazil to provide cryptocurrency payment services. The new Brazilian legislative framework will also regulate the operation of cryptocurrency service providers, i.e., exchanges, custody platforms, and asset managers.

Brazil's new cryptocurrency legal framework does not define which government entity will supervise the cryptocurrency market; however, it is plausible that the Central Bank will take up this role. It will be responsible for examining requests for authorization from cryptocurrency service providers, which will be required to adopt good governance practices and transparency in providing services and products and promote active risk management. Notably, the law will not apply to cryptocurrency tokens with characteristics of securities. For misuse of cryptocurrencies for fraudulent activities, including money laundering, an imprisonment sentence is foreseen for violators of the respective rules.

The new law's text remained unchanged from the bill adopted earlier by the National Congress of Brazil. The Brazilian cryptocurrency regulation shall come into force on June 20, 2023, 180 days after publication.

Brazil has been one of the most active countries in the cryptocurrency industry of Latin America. Several banks, brokerage companies, and investment firms in Brazil already offer cryptocurrency custody, investment services, services of token offerings, and cryptocurrency Exchange-Traded Funds (ETFs).

Regulation of the cryptocurrency industry provides greater security to all market participants. Streamlined and efficient legislation addressing key aspects of digital business operations also allows service providers to offer products and services on solid and effective governance principles, transparency, and operational security.

Utilizing local experiments with the use of cryptocurrencies as a means of payment, employing blockchain for data storage purposes, and available legal regimes for conducting cryptocurrency-related businesses, Latin America acts proactively and effectively in the direction of embracing new technologies and attracting innovative projects from all over the world to operate in this region, while allowing local customers to potentially benefit from fairness and security of the industry.