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Can I trade Bitcoin and cryptocurrencies in Colombia?
An introduction to Bitcoin and cryptocurrency in Colombia
Security and consumer protection have been the growing name of the game across all countries with regard to their cryptocurrency economies. Much of the recent activity, of course, was fuelled by the collapse of FTX, which also had the effect of speeding up other crypto legislation proposals which were dragging along slowly.
This brings us to Colombia, which is assessing a bill to regulate the way cryptocurrency exchanges operate in the country. South America has always had highly enthusiastic crypto populations, which have grown through light or indifferent regulatory stances by governments – Columbia falls into the indecisive camp. In line with many countries, the proposed bill has nothing radical to offer. The regulation and licensing of exchanges before they can begin to, or continue to, trade, that it recommends are only parring for the course.
A proposal to require banks to broker the link between cryptocurrency exchanges and customer accounts in good old state-backed fiat currency is a direct action to hinder the growth of pyramid-type scams that have best the country.
Over the years, Colombia has sent out mixed messages about Bitcoin and other crypto goodies. Rumours that Bitcoin had been banned proved untrue, but the government has repeatedly warned against it and refuses to give the crypto assets any status as a currency or as a security. Taking this position has left potential crypto investors with only a warning against the risks and no real authority to protect them as crypto-related businesses are not empowered or required to do so. Having no state or private guarantee leaves investors with just the old ‘buyer beware’ sign over their activities – the proposed legislation, therefore, is a mighty if hesitating step forward.
Naturally, with Colombia’s reputation for past scams and nefarious activities, it was inevitable that cryptocurrency would become enmeshed. It’s fair to say that legislation is long overdue.
Bitcoin and crypto trading taxation in Colombia
Stating that crypto has no basis as a currency or security, leaves it in something of a limbo, and without a clear definition of exactly what it is, it also becomes pretty much impossible to tax efficiently. Over the world, governments generally have held two prime interests in the development of cryptocurrency in their respective countries – one, the need to stop it from being used for criminal purposes, and two, the need to tax it somehow (there’s irony for you – or is that a paradox?).
Colombia then wants a tax rake-off but needs, in effect, to give crypto regulatory credence. Having investors declare crypto gains for income tax returns whilst it remains a dark activity means tax issues are difficult to assess and the requirements are yet to be formulated.
Colombian banks and Bitcoin
As Colombia moves hesitantly forward on new regulations to increase cryptocurrency protection, the emphasis is on how the banks and the crypto firms will work together. The Financial Superintendence of Colombia has been assessing the public mood on a risk management system to combat money laundering and terrorist financing activities. Also covered in proposed rules are cybersecurity guidelines and the recording of transactions via crypto exchanges
Upcoming laws – or at least proposals – point to the purchasing and selling of crypto assets through their traditional banking accounts – in fiat currencies.
A major sandbox initiative in South America included Colombian banks and allowed them to operate in conjunction with leading crypto exchanges such as Binance. The Bancolombia created a working association with New York-based exchange Gemini, allowing a selected number of investors to purchase crypto within a 12-month pilot scheme.
In early 2022 Binance initiated a pilot with Colombia’s third-largest bank, Davivienda, allowing 5000 bank account holders to accumulate digital assets. The sandbox experiment took in several banks and the outcomes will play a part in any ongoing assessments.
Blockchain education and development in Colombia
Colombia University based in the financial hub of Bogota has been playing a key part in blockchain education and learning. The Colombia-IBM Center for Blockchain and Data Transparency is supportive of blockchain research into secure data sharing along with the assessment of new business models to monetize blockchain-based applications.
Blockchain@Colombia is a student organization focusing on Defi (distributed ledger technology) which provides workshops and hosts large events such as Ledgerfest, Columbia’s annual blockchain conference.
The university offers 18 blockchain-related courses – although no degree courses as yet, and provides online programs called the Blockchain in Business, to guide business decision-makers through transformative changes.
Spending Bitcoin in Columbia
The city of Medellin had three times the number of companies that accepted cryptocurrencies than Cali – a city of similar size in Columbia. This open-source information from a website shows firms that either have an in-store cryptocurrency ATM or accept digital currencies as a viable payment method.
According to Statista, most such businesses were located in the capital city of Bogota, but the source also shows that the city of Pereira had a figure almost as high as Medellin, despite being a much smaller city. Source:
Bitcoin Mining in Colombia
As you would expect with low to zero Bitcoin regulations and no real cohesive tax policy for crypto gains, mining for Bitcoin in Colombia is not restricted. There was talk by the former government of using volcanos to provide the power needed for bitcoin mining, there was also talk of using waterfalls to generate the electricity for mining too. Basically, they need to harness all the talk on Bitcoin initiatives and the country would be self-sufficient for years. With little or no tax implications, the only hindrance seems to be finding the energy to do the mining. It’s easy to forget that Columbia is a rich natural habitat of rainforests and coastline, so there is much talk on regeneration and preservation of the environment so mining may or may not prosper based on environmental concerns as much as anything.
Is there a CBDC in Colombia?
Colombia is one of a number of Latin American countries working on their respective Central Bank Digital Currencies – CBDCs, including Brazil, Mexico, and Peru. The central bank has explored the concept of a CBDC with a trial experiment as far back as 2017 and also during 2019 when it involved five banks. At present, like many things, Colombia is considering the introduction of a central bank digital currency (CBDC) to reduce the country’s wide dependency on cash transactions and, er to reduce tax evasion. Good luck with that. Indeed, as part of a tax reform program pushed by President Gustavo Petro, the government plans to ban cash transactions for amounts surpassing 10 million Colombian pesos – that’s around $2,350.
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