Published: December 8th, 2021
Residents of Colombia will soon be able to buy cryptocurrencies like bitcoin and ether directly from their bank accounts. Bancolombia, the country’s largest high street bank, is allowing a limited number of customers to buy crypto from their personal bank accounts in a highly publicised one-year pilot.
The trial is part of Colombia’s new regulatory regime, an evolving set of rules designed to normalise the use of digital currencies in the country. Crypto watchers say it's slowly beginning to alter the domestic financial services market, with more banking institutions launching cryptocurrency services in partnership with leading crypto services.
From December 14, Bancolombia customers will be able to buy cryptocurrencies through a deal with the crypto exchange Gemini, owned by the Winklevoss-twins. While they came to fame initially as early backers of Facebook, they’ve since become bitcoin maximalists backing a raft of crypto-related ventures.
A limited number of Bancolombia clients will be able to buy BTC, ETH, LTC, and BCH from their personal accounts. The trial programme will be overseen by the country’s financial regulator, the Financial Superintendence of Colombia or FSC.
Bancolombia will handle customers’ fiat cash, while Gemini will provide the system for exchanging and taking custody of cryptocurrencies for deposits, withdrawals, or savings (e.g. HODLing where cryptos are concerned).
‘This partnership represents a vital step in the strategic expansion of Gemini's Latin American presence’, said Cynthia Dal Pollo, head of corporate development at Gemini. ‘We are excited about supporting Columbia’s crypto ecosystem and the development of crypto products that help Colombians assert more control over their finances.'
Colombia’s evolving regulatory sandbox is notable amongst Latin American countries, in a region which is rapidly moving to the forefront of crypto adoption.
The joint Gemini-Bancolombia trial would be the second to move forward of nine recently announced and the only one to feature a top US cryptocurrency exchange. While Bitso and Binance have been linked to other projects, no announcements have yet been made about launch dates or the exact nature of the projects.
An earlier Columbian initiative involving MOVii and Bitpoint has reported close to USD 500 million in funds moving through its systems since November, with an active user base surpassing 2,000 users. MOVii CEO Hernando Rubio told the press recently that the startup is working on an integration with Brazilian cryptocurrency exchange Ripio to expand its customer base and offer new services.
Earlier this year, Columbia’s norther neighbour El Salvador became the first country to recognise Bitcoin as a form of legal tender.
Salvadoran President Nayib Bukele said via his Twitter feed that he had personally submitted a "Bitcoin Law" to the country’s legislature for debate and a final vote. It was debated and voted through with a clear majority in a few hours, giving BTC its first legal tender recognition.
The new law compels El Salvador’s merchants to accept BTC as payment for any transaction.
Bukele told Reuters at the time that ‘of all the decisions we will make in this siting of the parliament, the Bitcoin Law may turn out to be the most wide-reaching.’ The move made El Salvador the first country to put bitcoin on par, legally speaking, with the greenback, its other officially-recognised national currency.
The law requires businesses to publish all prices in bitcoin as well as greenbacks and makes BTC acceptance for purchases mandatory. Businesses in rural areas that operate in cash and don't have card payment terminals are exempted from the law.
Bukele’s legislation explicitly states that the exchange rate for bitcoin will fluctuate in accordance with the market. To head off arbitrage plays, it also says that the country’s Development Bank must create a dedicated trust to ensure that exchange between BTC and USD happens immediately. Crypto and forex trades conducted in bitcoin will also be initially exempt from capital gains taxes.
The initial rollout faced technical and legal difficulties as concerns were raised that digital wallet operator Strike, who the Salvadoran government had partnered with, lacked the necessary licensing and permissions to operate across the United States. That’s a vital consideration given the number of remittances that come back to El Salvador from expats living and working in the US.
Media reports in August suggested that Strike hadn’t yet acquired the state-by-state US banking licenses required to be a facilitator of cross-border transactions. That would have made many of the crypto transfers made to El Salvador via Strike in the opening days of the deal illegal.
Then in July, Paraguay announced it would begin formally regulating cryptocurrencies, an important first step on the road to eventual acceptance as a form of currency or as a recognised financial asset.
A leaked draft of the bill seen by The Wall Street Journal said that cryptocurrencies like BTC and ETH would need to be registered with Paraguay's national tax authority. Proposed rules would control the conduct of cryptocurrency miners and set limits on exchange-based crypto trades. Traders using DeFi peer-to-peer marketplaces would also need to register for tax purposes.
The move was not universally lauded by crypto enthusiasts or legal analysts, who suggested the draft bill proposed new crypto taxes and an emergency recovery fund without clarity on practical implementation.
However, there seems to be general agreement that the bill’s overall objectives are worth pursuing. Since then, a government commission has been set up to draft a new bill, this time in consultation with financial experts, policymakers, and crypto industry insiders.
Even if the details are imperfect, the formal recognition of cryptocurrencies offers hope to crypto companies, traders, and beleaguered Paraguayans, who often struggle to work effectively within the country’s rickety banking and payments systems. Regulation could shine a light on systemic problems and inefficiencies that digital currencies might help solve.