Latin America lagging behind in the race to regulate cryptos

At a time when crypto – cryptocurrencies, intelligent contracts and decentralized applications – are essential as an integral part of the global financial system, Latin America has still not defined a clear and functional regulatory framework. This slows down not only innovation, but also endangers millions of users and investors in the region.

To better understand the panorama, we have conversed with Jazmín García, founder of Nohbek, a BAAS service platform (Blockchain AS A Service) specialized in web 3.0 solutions and digital transformation. Recognized for her work as an expert in regulation, Jazmín warns: ” In Latin America, we respect the rules by obligation, not by conviction; If there is no law, there are no good practices, which keeps us in a reactive position rather than preventive“.

The case of Europe: mica as a model to follow

In April 2020, the European Parliament adopted the law on cryptocurrency markets (MICA), which entered into force in December 2024. This is the first complete legislation regulating not only cryptocurrencies, but also stablecoins, tokens, exchange platforms and cryptive-active issuers.

Mica obliges service providers to register, to respect the anti-money laundering rules, and to present detailed white buses. A particularly visible case was that of Tether (USDT), which did not obtain a license and was removed from European exchange platforms.

Mica marks a before and after. It is clear, operational, and brings legal certainty to all actors. In Latin America, we are very far from something similar.

United States: several agencies, but no unified executive

Unlike the European Union, the United States does not yet have a single federal law which globally regulates the crypto ecosystem. Instead, they built a fragmented system where different agencies approach specific aspects:

• There US Securities and Exchange Commission (DRY) regulates the crypto-actives which it considers as securities, as in the cases of Ripple and Binance.
• There Commodity Futures Trading Commission (CFTC)) Supervise assets linked to raw materials.
• The Internal Revenue Service (Irs)) Treats cryptocurrencies as a property for tax purposes, forcing to declare gains and losses.
• The Financial Crimes Enforce Network (Fincen) imposes KYC and AML standards on exchange platforms.
• Companies such as Chainalysis support the government in the detection of illegal operations by artificial intelligence.

In addition, certain states and Wyoming have taken firmer measures, legally recognizing the DAOs and promoting local pro-Crypto local legislation.

Although this institutional structure allows a certain degree of functional regulation, the country still has to take up the challenge of harmonizing the criteria between agencies and providing greater legal clarity to users, companies and developers. The absence of a coherent federal framework generates uncertainty, in particular for those who seek to operate on a national scale.

Crypto in Latin America: between progress and decline

Although the panorama in Latin America is diverse, predominate partial or absent approaches. Some examples:

• Salvador recognized Bitcoin as a legal currency in 2021. But without robust educational campaign, adoption remained limited.
• Brazil adopted in 2023 a law regulating technological financial services providers, including in crypto.
• Argentina legally allows the purchase and sale of cryptocurrencies, although there is no specific legislation.
• Peru and Colombia have bills in debate, without implementation for the moment.
• Bolivia prohibits the use of cryptocurrencies as a means of payment.
• The equator announced regulations in 2022 which has not yet been published.

We see isolated efforts. But without regional coordination, without minimum standards, and without political will, we risk losing the race for technological leadership.

One of the key points underlined by García is that governments continue to see blockchain only as synonymous with cryptocurrencies. However, technology has multiple applications such as the traceability of agricultural and industrial products, decentralized digital identity systems, transparency in public markets and social programs, the automation of audits and legal processes, and the management of digital rights and intellectual property.

The blockchain is not the enemy. But in many governments, including that of Mexico, it is still associated with scams, speculation or illegal money. This limited vision excludes us from the future.

Mexico: normative divorce

Mexico was one of the first countries in Latin America to regulate fintech, with the 2018 Fintech law. However, the framework remained insufficient in the face of the speed with which the business models based on crypto-actives evolve.

The Fintech law does not take into account the DEFI protocols, the DAO or the sting. The only accounting standard, NIF C-22, only applies if used as a means of payment. And fiscally, you can declare income from crypto, but not deduce losses. It is a contradictory system.

This downside generates what it calls a “normative divorce” between accounting, tax and financial laws, forcing companies to navigate in a legal labyrinth to be able to operate.

The absence of Crypto regulation: a risk of leakting talents and capital

The absence of legal clarity does not only affect users. It also distances investments, discourages developers, and obliges Latin American startups to migrate to jurisdictions like Estonia, Portugal or the United Arab Emirates, where regulation already incorporates decentralized scenarios. “” Without clear rules, talents leave. They do not want to be in a country where operating can be considered illegal at any time“, Add Jazmín.

According to the Crypto Ownership Report 2024 report from triple aLatin America brings together more than 55 million people with crypto-active, positioning itself as one of the regions with the highest adoption worldwide. Ignoring this reality does not only expose users, but also leaves countries out of competition for investment, talents and technological development.

Beyond technical laws, the region requires several factors to enter the race:

1. Involve the actors of the ecosystem in legislative work tables.
2. Launch educational campaigns initiated by governments.
3. Avoid prohibitive regulations, and on the contrary promote a flexible and favorable framework for innovation.
4. Design complete frames, not tax or accounting patches disconnected from each other.

If Latin America wants to be part of the future of finance, it must stop reacting and starting to build. Because in the decentralized new financial order, regulations are not a barrier: it is a tool to release the potential of technology.