Regulation
Chile is poised to lead Latin America in cryptocurrency regulation, even as it lags in adoption
The country now has a FinTech law that creates a category for “crypto-assets.”
Of the 33 countries in Latin America, it may come as a surprise to some that a small sliver in the Deep South is leading the way in cryptocurrencies.
Most followers of the blockchain industry will probably know that Argentina has a grassroots-driven crypto ecosystem, while Venezuelans challenge an authoritarian system using digital assets, and Brazil is a giant market of cryptocurrency holders.
Yet Chile is rarely in the spotlight. But things could change.
Chile passed a new FinTech law in 2023, which includes a category for so-called “crypto assets.” This puts Chile at the forefront in terms of regulating the blockchain industry compared to its neighbors.
Last week, the nation’s crypto ecosystem came together CryptoSummit Latam conference in part to discuss the implications of the law regarding cryptocurrencies when it goes into effect in February 2025.
“Having a FinTech law and the [recently added] rule that will regulate crypto assets, places us in a leadership position for the region,” said Felipe Godoy, partner at Wolf Groupa law firm specializing in cryptocurrency.
According to Godoy, although the law is still in its infancy, he appreciates the fact that it “offers legal certainty.”
In other words, the industry now exists within a regulatory framework and not the gray area in which it operated.
Easier to make transactions
Chile, which has a small population and relatively high access to financial services, may prove a good testing ground for the rest of the region to follow suit if passed legislation provides useful guidelines for digital assets.
Godoy’s point of view is in line with that of Cristobal PereiraCEO of Colledge, a Web3 education platform based in Chile.
“It’s good because it will allow a deeper market to develop, attracting both national and international players,” he told The Defiant.
While the law doesn’t affect Colledge’s business model, Pereira said, it still has administrative implications.
Pereira explained that it will now be easier to use national and international payment channels without having to offer banks explanations about the origin of the money, “nor will our transactions be blocked.
Bulky documents
However, at least one cryptocurrency entrepreneur isn’t entirely happy with the rule.
Sebastián Saá, CEO of SugarBlock, a Chilean startup that offers investors passive income on their cryptocurrencies, told The Defiant that there are still many unknowns in the process. The CEO also said that regulators often lack experience when it comes to the industry and how blockchain technology works.
SugarBlock has been operational since April 2022 and is busy trying to comply with the rules, which are complex due to regulators’ misunderstanding, Saá said.
According to Saá, crypto companies have to deal with inefficiencies, as they have to adapt to regulations written by agencies that don’t fully understand the industry or the underlying technology.
And newer companies, like SugarBlock, are grappling with extensive amounts of paperwork to continue operating, a reality that could prevent more companies from starting.
Stable financial system
Latin America is home to more than 650 million people, of which 122 million without bankswhile several countries in the region record double- and triple-digit inflation.
Meanwhile, Chile, with a population of 19 million, has a relatively more robust and stable financial system that allows 97% of the population to access financial instruments, according to a study 2019 survey by the Superintendence of banks and financial institutions.
Delayed adoption
Yet, while Chile is no stranger to cryptocurrencies, it is something more 1% of the population has been looking closely at the Worldcoin globe, and the country’s largest exchange, Buda.com, has integrated more than 500,000 users – it’s not even known for being the most crypto-friendly.
The nation’s stability, access to banking and the low inflation rates mentioned above could be behind the low levels of cryptocurrency adoption in the country – there is no desperate need for uncensorable money like in other parts of the region.
According to a 2023 Chainalysis report, Chile is the sixth largest country in Latin America by cryptocurrency value received, and is fifth largest by GDP in the region. Argentina and Venezuela have higher levels of adoption relative to their economic size.
Latin America has no rules
The delay in adoption does not prevent local regulators from taking steps toward adopting the technology at the policy level. Meanwhile, their counterparts have been slow in most of the region.
Mexican Senator Indira Kempis has been at the forefront of pro-Bitcoin legislative talks, but she has mentioned previously I’m still in the educational phase.
On the other hand, Argentina has one of the largest crypto communities in the world, spawning dozens of projects, and has yet to adopt pro-crypto legislation. Many are also awaiting help from recently elected libertarian President Javier Milei, although news emerged on March 25 that the country would be creating a registry of virtual asset service providers (VASPs).
An exception is El Salvador.
Led by millennial president Nayib Bukele, the small Central American nation made headlines when it made Bitcoin its legal tender in September 2021. But locals say adoption has been slow: Bitcoin users halved to 12% in 2023, citing the lack of a real educational approach from the government, but the attempt to become the first Bitcoin country was still pioneering.
While lawmakers have been slow to move in most of Latin America when it comes to cryptocurrencies, native Web3 companies continue to make great strides.
Buenbit, Argentine exchange lifted up an $11 million Series A in 2021 to strengthen cryptocurrency adoption in the region, Tether launched a stablecoin in May 2022 for the Mexican peso, Unstoppable Domains expanded into the region in December 2023 in what the company called a “calculated move”, and experts say that Brazil has all the ingredients to become one Web3 powerhouse.
What’s next
For Felipe Godoy, his eyes should be on February 2025.
This is when the first round of opt-in from crypto companies ends and the industry will have a better picture of how many are operating, whether they are complying and, ultimately, whether the law is helping to drive innovation or simply to kill them with the application.
Godoy believes complexity is coming, due to the large amount of paperwork companies have to fill out, but calls it “normal.” First, he said, regulators need to recognize cryptocurrencies in general before wading into deeper waters.
Experts often tag emerging marketspotential to disrupt traditional industries, particularly banking or financial services. Chile now has a chance to lead the way in Latin America when it comes to cryptocurrencies