Another in our series looking at government and corporate mismanagement, misinformation and malfeasance.

“The desire of regulators local and global, is the Chinese model. Maximum population control with zero privacy. Only Bitcoin fixes this”

Camilo Jorajuria, Argentinian legal consultant and expert in Bitcoin and blockchain affairs

US Treasury Secretary Janet Yellen has recently given a warning about Bitcoin being “extremely inefficient”. She went on to say:

“I don’t think Bitcoin is widely used as a transaction mechanism. It is a highly speculative asset and you know I think people should be aware it can be extremely volatile and I do worry about potential losses that investors can suffer.”

Now with the advent of cryptocurrencies, Bitcoin, DeFi and blockchain driven financial solutions are reshaping the financial playing field. With a background in traditional finance, Yellen is certainly out of touch when it comes to crypto in general. She comes out with the same boring mantra that Bitcoin is used to enable illicit transactions and fund terrorism. She should be taking a look at what is going on in those neighboring countries of South America to see how crypto adoption there is working so well with several countries taking a positive approach to blockchain technologies. Admittedly, Bolivia and Ecuador have banned all crypto currencies outright but those governments cannot see that using this technology in a proper business and regulatory environment can attract investment and projects that could play a vital role in a country’s development.

In Argentina for instance, a small bank there called Banco Masventas has partnered up with the Latin American exchange Bitex to offer its customers a cryptocurrency settlement service. The new service makes international transfers easier and cheaper as costs associated with such transfers are reduced as no international banks are acting as intermediaries. Argentina is one of the countries in South America with a more positive approach towards crypto and with the permission of the Central Bank of the Argentine Republic, Bitcoin ATMs have been installed across the nation.

Bitcoin are not actually considered legal tender due to the fact that they are not issued by the Central Bank. The cryptocurrency was viewed as a good or thing and thus governed by the rules under the sale of goods law. This was up until December 2017 when the government amended the law on income tax. This provided that the profits derived from the sale of digital currency were to be considered as income from stock and bonds and taxed as such. Whether any Bitcoin transactions were declared to the tax authorities is of course another matter.

According to Bitcoin trading platform Paxful, 80% of Colombians are open to investing in cryptocurrency. Many young people are already used to trading with digital coins and almost half of those surveyed between 25 and 40 held cryptocurrencies or planned to buy some soon. By South American standards, Colombia is not suffering from high inflation, so with a recovering economy the population is open to opportunities with cryptocurrencies and fintech start-ups. In 2018, Bogota ranked seventh in the list of top bitcoin cities, with 87 active crypto businesses.

Digital Currency Gain Popularity in Colombia | Paxful Blog
According to a recent poll conducted by Toluna Insight, 80% of respondents are open to investing in cryptocurrency. See the full survey results here.
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As South America’s largest nation, Brazil has been experiencing a surge in cryptocurrency transactions and at one stage in July of 2019, it was recorded as having the world’s fourth largest transaction volume. Shortly after, the Banco Central do Brazil (BCB) took the positive step of stating that the buying and selling of cryptocurrencies would be logged as “produced assets”, meaning that crypto trading statistics would be included in balance of payments asset calculations. The BCB went on to say that “cryptocurrency mining activity would now be considered as productive process.”

An exchange called Foxbit claims to have 400,000 registered users and this compares well to the 600,000 Brazilians who are registered as having stock brokerage accounts. Eduardo Ferreira, head of international business development for Foxbit in London said

“For the guys who used to hide dollars under their mattresses, now they are hiding it in Bitcoin. It’s students buying it. It’s 60-year-old bus drivers.”

Fernando Furlan, the former head of Brazil’s antitrust division, now the runs the Brazilian Association of Cryptocurrency and Blockchain. He said

“It’s easy to understand why so many are interested in it. This is a nation of lower-and working-class people, and they don’t have stock brokers. They have all heard about how this thing called Bitcoin is making people rich. Crypto is introducing a whole class of people in Brazil to investing.”

Whilst Venezuela’s government-issued petro cryptocurrency was supposed to help the country transact outwith the US dollar, it has evidently had little support and failed in this respect. Suggestions that the token sale had raised billions of dollars were quickly refuted by Reuters who calculated that only 850 million had been sold. In addition, they concluded that

“...there is no way to verify that those were sales, and no large investors have admitted to taking a position in the petro.”

However, in terms of other digital currencies, the general population have a braced them as a way of storing their money due to the rampant inflation which plagues Venezuela. Many Venezuelans work as freelancers for overseas customers but don’t have dollar accounts abroad and taking payment in the rapidly declining bolivar is meaningless. Therefore instant payments via Bitcoin are becoming the norm. Holding Bitcoin gives people access to the financial world outside Venezuela as it is prohibited to exchange the bolivar to dollars or any other currency. Thus crypto allows Venezuelans to bypass these barriers.

South American countries are some of the most crypto-friendly in the world, this having been brought about by frequent currency devaluations and unstructured monetary policy. With the uncertainty regarding the value of currencies such as the Brazilian Real or the Argentine Peso, individuals and businesses are looking for ways to hedge their domestic currency through alternative asset classes. With a high number of internet users in South America, it is easier for citizens to access a crypto wallet than try to integrate with the traditional financial system.