After France led the world by putting forth crypto and blockchain regulations, activities in the crypto world have picked up pace. Recently, Chile, a South American country, saw a 180-degree switch as Felipe Larraín, Chile’s finance minister, announced introducing a bill to the parliament on regulating cryptocurrencies and fintech.
The crypto industry in the country has been taking pace, regulations will enable the industry to smoothly operate, expand and flourish. Moreover, with a framework, the interests and protection of citizens investing in cryptos can be dealt with. Chile is often criticized for being old school when it comes to innovation in the fintech sector. So, with blockchain and cryptocurrency regulations, numerous innovative projects and startups can be supported. Moreover, regulations will ensure that companies offering blockchain and crypto solutions, explore more use cases and renovate the current way of implementing projects
While visiting U.S. to attend World/IMF Spring Meetings, Felipe Larraín revealed that he has forwarded the bill to Chilean Congress in order to cater to the needs of all business models involving cryptocurrencies. He clarified that instead of a blanket rule, a general rule applicable to everyone, the bill proposes requirements proportional to the businesses. He explained that as business models are capable of taking different forms and offering unique services, regulation needs to deal with the requirements proportionally. He said:
Taking into account the different forms taken by the business models of these platforms and also the fact that different platforms can provide different services, the regulation will apply requirements proportionally, regulating according to the type of service provided and the risks that this implies for the users and for the financial market.
At the moment, bitcoin and altcoins are not recognized by the monetary system of Chile. Consequently, there are no regulations for the cryptocurrencies and crypto exchanges, established in the country. Larraín highlighted that the primary motive to regulate cryptocurrencies is to minimize the risk associated with them. Describing the objective, he stated:
A regulation to these platforms would mitigate some of these risks, such as money laundering and financing of terrorism, and increase the legal certainty with which they operate. We want to adequately protect the risks associated with this activity.
Although cryptocurrencies were not bestowed any economic value or significance in the past, they were derogated by the Central Bank of Chile (BCC). BCC showed severe opposition to decentralized digital assets by stating that bitcoin isnot capable of replacing fiat, sharing its perspective:
Currently, there is no evidence that would allow the conclusion that Bitcoin, or any other crypto asset, or crypto assets in general, will substitute legal currencies.
Besides, BCC refused to acknowledge the presence of crypto market in the country by declaring it to be negligible. According to a report, the first company to offer purchase and selling of bitcoin in Chile was Yaykuy, established in 2014. Along with SurBTC, ChileBit.net and TradeBTC, Yaykuy accounted for over $ 7 million in revenue per month while serving thousands of Chileans. Banks displayed hostile behavior towards bitcoin and other cryptos and build a narrative that cryptocurrency regulations were not important for the country as they were used by a very small percentage of Chileans. Cryptos have the potential to improve current financial systems and even replace it with blockchain projects, they are risky substitutes for the bank. This explains why banks try to hinder mass adoption by all means.
The rivalry between Chilean banks and cryptocurrency heated up when the banks closed the accounts of crypto exchanges, BUDA, Orionx and CryptoMarket, without any explanation. When the incident took place, bitcoin and local coins enthusiasts responded with trend #ChileQuiereCryptos, which meant Chile wants crypto, on Twitter. Later, the Chilean anti-monopoly court, known as the Tribunal de Defensa de la Libre Competencia (TDLC), ordered the banks to revert their actions.
Bitcoin and other cryptocurrencies haven’t been of interest to most South American countries. Countries like Bolivia and Ecuador have been quite aggressive while dealing with digital currencies because they believed that people could lose money while investing in unregulated and volatile cryptocurrencies. Therefore, to protect investors from highly fluctuating prices of cryptos, they both have imposed strict bans on all cryptos except SDE token, an Ecuadorian government-issued currency, allowed in Ecuador only. Ecuador, after realizing that electronic money is more attractive for citizens, decided to launch its own token for its citizens. The country believes that SDE token is not volatile like bitcoin and other cryptos and only the use of regulated SDE token is allowed.
Mostly, countries in the region do not realize the potential of bitcoin and other digital assets so attention and efforts toward regulating them are anticipated. However, many retailers and merchants accept cryptos as a mode of payment and countries such as Mexico, Argentina, Brazil, Venezuela and Chile collect capital gains tax from people profiting from crypto trade.
Cryptocurrencies and the underlying technology, blockchain, are well-known for innovation. The trend to regulate them is finally spreading over continents. After France stood up for Europe and Andrew Yang, 2020 U.S. presidential candidate offered to take care of crypto regulations if he comes to power, Chile is continuing the successful journey of bitcoin and other cryptos. Though different countries from other continents have joined in, states accepting the significance of devising a framework for the cryptocurrency is not dense. These countries have only ignited the fire while there still remains plenty of uncovered territory for cryptocurrencies. In the future, it would be of great interest to see how rapidly the fire spreads before sizzling out.