Argentine Crypto Rule Is Blow To Mainstream Adoption, But Won’t Stop It

May 23, 2022
The Argentine central bank’s statement restricting the ability of banks to offer crypto services may halt mainstream adoption but usage is continuing to grow in the country driven by a need to protect against inflation.

The Argentine central bank’s statement restricting the ability of banks to offer crypto services may halt mainstream adoption but usage is continuing to grow in the country driven by a need to protect against inflation.

Earlier this month, Argentina’s central bank (BCRA) released a statement notifying financial entities that they are not allowed to carry out, or facilitate their clients to carry out, operations with crypto-assets that are not regulated by the country’s central bank.

In the release, the BCRA said the move is intended to mitigate the risks associated with digital asset operations that could harm customers, as well as the financial system as a whole.

Just three days prior to the BCRA statement, Argentina’s largest private bank, Banco Galicia, and digital bank Brubank announced plans to offer their business customers the possibility to make investments in bitcoin, ether or USDC.

The decision to introduce these new services was based on an internal open survey by Banco Galicia that showed that more than 60 percent of its clients wanted to add these assets to their investment portfolio, the bank told VIXIO.

With the new offering, the banks intended to boost mass adoption and create an easy “one stop shop” platform for crypto investments.

In addition to convenience, the entry of regulated financial institutions into the space could have increased the trust and confidence of the public in these assets, Marcos Zocaro, board member of local association Bitcoin Argentina, added.

The ban was “a blow to the mass adoption of these assets”, Zocaro said. The association is, however, confident that, given the economic context, “the adoption of cryptocurrencies in Argentina will surely continue to increase by leaps and bounds”.

“We believe regulation will be a matter of time and, when it happens, we´ll be ready to engage,” Banco Galicia said.

More than just investments

The adoption of cryptocurrencies is growing fast in Argentina.

A recent study by Americas Market Intelligence found that around 12 percent of the adults in Argentina have already invested in cryptocurrencies, double the level of the average penetration in Latin America and almost three times as high as in the UK.

This includes $1.86bn in cryptocurrency investment gains in 2021, according to the estimates of Chainalysis.

However, although most crypto enthusiasts around the world typically engage with crypto-assets for investment or ideological reasons, more than half of the Argentines said they did so to protect their savings.

With an annual inflation rate of around 60 percent, cryptocurrencies are a viable option for people to protect against the constant loss of purchasing power of the Argentine peso, Zocaro said.

In addition, the country has imposed numerous exchange restrictions that prevent access to the purchase of dollars and has created obstacles to sending and receiving foreign currency.

Over time, cryptocurrencies have emerged as an “ideal, much faster and more efficient way than an international bank transfer”, Zocaro added.

Problematic regulatory environment

Although adoption and the number of crypto offerings are growing in the country, the Argentine regulatory context is far from ideal.

In addition to “imprecise tax regulation”, there are constant inconveniences that crypto-asset exchanges have to overcome when operating with traditional banks, Zocaro said.

For instance, the Income Tax Law mentions digital currencies but without providing a definition of such a concept. The profits derived from the sale of digital currencies are taxed both by the company and the individual and, on top of this, individuals may be required to pay taxes on the simple ownership of these assets, he explained.

Meanwhile, it is also the stated intent of the country’s government to discourage the use of cryptocurrencies.

In a March letter of intent sent to the International Monetary Fund (IMF), the economy minister and the president of BCRA wrote that to “further safeguard financial stability, we are taking important steps to discourage the use of cryptocurrencies with a view to preventing money laundering, informality and disintermediation”.

The commitment was part of a deal between Argentina and the IMF to restructure $44.5bn of debt from a record 2018 bailout and showed diversion from the country’s initial crypto-friendly approach.

Argentina was an early adopter of crypto-assets. As early as 2014, Argentines could make small purchases in bitcoin in about 8,000 convenience stores, and in 2019 state public transporters started to accept bitcoins for card top-ups.

In 2021, however, the central bank warned the public that digital assets pose a number of risks due to their high volatility, potential cyberattacks, money laundering and lack of investor protections that otherwise apply to traditional financial institutions.

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