The Cryptocurrency Market in Latin America

According to Chainalysis data for 2022, Latin America’s cryptocurrency market is the seventh largest in the world. Since June 2021, Latin American users have conducted crypto transactions worth ~$562 billion in 12 months, a 40% increase over the previous period. According to research by Gemini, Brazil is the region’s leader in crypto transactions. CoinsPaid Media published a separate article on its cryptocurrency market. 

In this article, we’ll examine digital asset regulations in other Latin American countries to get a general picture of the region. We’ll focus on five states where cryptocurrency transactions are most common among citizens. 

Venezuela

As of 2022, Venezuela’s economy is in a rather deplorable state. Food, electricity, and medicines are in short supply. According to Chainalysis, the Venezuelan bolívar depreciated by over 100,000% between December 2014 and September 2022. Many locals, fearing continued hyperinflation, are converting their savings into digital assets. 

The economic situation explains Venezuelans’ interest in blockchain games, which can bring income far beyond their monthly salaries. Users from Venezuela are among the top 3 players in Axie Infinity. 

The crypto industry in the country is regulated by the National Superintendence of Crypto-Assets and Related Activities (SUNACRIP). Venezuela is one of the leading countries in Latin America in mining, which is officially allowed in the state. 

Venezuelans actively use crypto for international transfers. Chainalysis estimates that while Venezuelans purchased $28.3 billion worth of cryptocurrencies in 2021, the same figure increased by 32% to $37.4 billion in 2022. Most transactions were carried out with stablecoins. 

Ordinary citizens can use digital assets in almost all areas of life. Crypto ATMs, a Bitcoin museum, and even BTC cafes are available in Caracas. Companies and individuals pay taxes for cryptocurrency transactions, ranging from 2% to 20%, depending on the amount of the transaction. 

Remarkably, tax requirements don’t apply to transactions involving the local national cryptocurrency El Petro, created in 2017 by the government. Officials say the asset is issued on Ethereum and backed by oil, diamonds, and other Venezuelan mineral resources. An online wallet, PetroApp, was designed specifically for transactions with El Petro, which also supports LTC and DASH. Users must pass a verification process to use all the features of PetroApp.

Despite the authorities’ efforts, El Petro isn’t in demand among ordinary citizens and local businesses. The main reasons include security problems with El Petro and the fact that the Central Bank of Venezuela and local online exchanges buy it at a much cheaper rate compared to the official exchange rate. 

Argentina

Over the past few years, inflation in Argentina, exacerbated by the COVID-19 pandemic, has resulted in another default. This situation has further motivated Argentines to invest in digital assets.

Crypto isn’t a legal tender in Argentina. In May 2022, the Central Bank of Argentina (BCRA) banned national banks from conducting transactions with digital assets. Nevertheless, the Financial Information Unit (UIF) defined crypto as a digital representation of value. This means that digital assets in Argentina can be used as a medium of exchange, savings, or unit of account.

Apart from the UIF’s definition regarding cryptocurrencies and the AML compliance requirements, Argentina has no specific law to regulate the industry. To comply with AML policy, local crypto exchanges must provide information to the UIF each month on transactions made by users, total income, and account balances. Legal entities are required to pay a 25% income tax, while the rate for individuals is 15%. 

What’s noteworthy is that legal entities can conduct transactions with digital assets without a special license. The exception is when the National Securities Commission (CNV) considers tokens used by a company to be securities. 

Due to special government subsidies for residential electricity, Argentina has a favorable environment for mining. As a result, Bitcoin mining is almost half as cheap as in the rest of the continent. Bitfarms, a Canadian blockchain company, plans to build the largest mining farm in Latin America in Argentina, with a capacity of 210 MW, allowing up to 55,000 miners to work there. 

The Argentine government continues to work on introducing digital assets into the financial and legal systems. Near-term challenges include creating a legal framework to regulate digital assets and licensing blockchain companies. 

Mexico

In 2018, Mexico was the first country in Latin America to start regulating crypto exchanges and other platforms used for cryptocurrency transactions. 

In March 2018, Mexican parliamentarians passed a law (FinTech Law) according to which cryptocurrencies don’t represent a means of payment but are considered exclusively virtual assets. The document allows local cryptocurrency exchanges to function in the country like financial institutions, which are regulated by the Banco de México. 

According to the Banco de México (BdM) regulation dated September 10, 2018, financial institutions must obtain special authorization from the bank and provide transaction data to conduct activities related to digital assets. The FinTech Law’s main objective is to implement the AML policy on digital assets. 

In February 2022, Mexican Senator Indira Kempis called for a law to make BTC legal tender and allow millions of people to become part of the global financial system. The senator is currently working on the bill based on El Salvador’s experience. 

Users engaged in mining in Mexico aren’t required to obtain any regulatory approvals. Bitmain held the World Digital Mining Summit (WDMS Global) in Cancún, Mexico in November 2022. 

Since crypto isn’t officially part of the country’s traditional financial system, there are no specific tax requirements for digital asset transactions in the law. Profits from these kinds of assets are subject to the standard income tax rate of 30% for legal entities and 2% to 35% for individuals, depending on the amount of income. 

According to Coin ATM Radar, as of December 2022, there are dozens of BTC ATMs operating in Mexico, with more than fifteen located in Mexico City. 

Colombia

Cryptocurrency has no legal tender status in Colombia as of 2022. The situation may change with the arrival of the newly elected Colombian President Gustavo Petro, who has already repeatedly stated his desire to develop the crypto industry in the region with large reserves of energy resources. 

In June 2022, a group of Colombian deputies began working on a bill to regulate cryptocurrency exchanges. One of the bill’s authors, Mauricio Toro, said Colombia should move forward with regulating the industry as it could bring billions of dollars to the country’s budget and create new jobs. 

Notably, Colombia’s largest bank, Bancolombia, announced in December 2021 a pilot project in which about 5,000 bank customers could conduct transactions with crypto using their bank accounts. The main criteria for selecting clients to participate in the project were knowledge of cryptocurrencies and skills to use them. The project was designed for one year. Its participants were able to conduct transactions with Litecoin, Ethereum, and Bitcoin Cash through the Gemini crypto exchange. 

While there’s no clear regulation of the cryptocurrency industry, the National Directorate of Taxes and Customs (DIAN) in Colombia declared control over individuals who didn’t record their income from crypto transactions or who inaccurately reported information on the “income and additional tax” line. Due to the high demand for operations with crypto-assets among Colombians in 2021, local authorities began to regard digital assets as high-risk investments and obliged citizens to pay a 39% income tax on such transactions. Legal entities have an income tax rate of 35%. 

A joint study by Paxful and Toluna Insight found that 86.5% of Colombians were aware of digital assets, and 80% were willing to invest in crypto.

Chile

In October 2022, the National Congress of Chile passed a law regulating digital assets. The document spells out detailed rules for blockchain companies and treats cryptocurrencies as a digital representation of monetary units, goods, or services. 

Remarkably, starting in 2019, the tax regulator in Chile (SII) required taxpayers to include income from digital asset transactions on their annual returns. The income tax rate for individuals in Chile is 40% and 17% for legal entities. 

SII’s decisions regarding taxes on cryptocurrency transactions are driven by Chileans’ high demand for digital asset transactions. According to Chainalysis, Chile is the leader in Latin America in using various DeFi platforms for crypto transactions. 

A report from the Banco Central de Chile of May 2022 indicated that the bank delayed the issuance of the digital peso it was developing until late 2022. Among the main reasons was the need to explore additional benefits and risks for users. 

Cryptocurrency Markets in Other Latin American Countries

Besides Brazil and the five Latin American countries presented above, crypto transactions remain popular in other parts of the region. Below is a list of some Latin American countries with brief information concerning the legal regulation of the crypto sector.

1. El Salvador. Since September 2021, BTC has been legalized in the country, and digital asset transactions are legally regulated. 
2. Bolivia. In 2014, the government officially banned cryptocurrency transactions as they could contribute to economic instability. 
3. Peru. As of 2022, cryptocurrency isn’t regulated by law. A bill to govern the industry was submitted to parliament in December 2021. 
4. Antigua and Barbuda. The country finalized and passed a law regulating cryptocurrencies and blockchain companies in 2020. 
5. Guatemala. A bill to regulate digital assets and the national digital currency has been drafted since 2021. 
6. The Dominican Republic. Transactions with digital assets aren’t officially banned, but the legal framework for regulating crypto is completely absent. 
7. Costa Rica. As of 2022, crypto transactions aren’t officially banned. The cryptocurrency status is determined by the El Banco Central de Costa Rica by issuing special directives. 
8. Cuba. As of 2021, crypto transactions are legally regulated by the Central Bank of Cuba. Legal entities are required to obtain a license in order to conduct transactions with digital assets. 
9. Paraguay. As of 2022, the Paraguayan Senate has drafted and passed a bill to regulate cryptocurrencies, however, Paraguayan President Mario Abdo Benítez doesn’t support regulating the industry and has blocked the document. 
10. Uruguay. A bill to regulate crypto was presented to the Senate in August 2021. Crypto adoption in the country’s financial system is also underway. 
11. Ecuador. The Banco Central del Ecuador plans to finalize legislation on digital assets by the end of 2022. It’s noted that cryptocurrencies won’t become legal means of payment. 
12. Nicaragua. The government supported El Salvador’s experience in adopting a law to regulate crypto in 2021, but as of 2022, there’s no regulatory framework for digital assets. 
13. Panama. The National Assembly approved a bill to regulate cryptocurrencies in April 2022. 
14. Honduras. The local government and the Central Bank don’t support industry regulation. 

According to experts from Chainalysis, the popularity of digital assets in Latin American countries stems from the devaluation and hyperinflation of local currencies. Moreover, given the lack of access of most citizens to traditional banking services, crypto is used as a means of storing money and for international transfers. Mastercard reports that over half of Latin Americans already have experience using cryptocurrencies. Against this background, many countries in the region tend to support legislative regulation of the cryptocurrency industry by local authorities.