Colombia’s financial regulator allows alliances between banks and digital currency exchanges

RIO DE JANEIRO, BRAZIL – Colombia´s financial regulator SFC says that it is authorizing alliances between Colombian banks and digital currency exchanges.

So far, Colombia’s financial department has approved nine partnerships between exchanges and national banks in order to make cryptocurrency operations more accessible to citizens.

Colombia has been friendly toward crypto assets like bitcoin (BTC) and other digital currencies over the years. More recently, during the first week of January 2021, the Superintendence of Corporations in Colombia explained in an official circular that local firms can leverage capital to purchase bitcoin.

The SFC, which is  tied to Colombia’s Ministry of Finance and Public Credit, shared a tweet on January 29, 2021, that informed the public about the alliance between a number of national banks and a select group of crypto exchanges. The mission is to enable more cryptocurrency operations to make the crypto economy in Colombia more accessible.

The initiative started in 2020, and a number of exchanges had to get approval from the FSC in order to participate. To date, the financial watchdog approved nine digital currency exchanges so far, and the platforms Movii and Panda Exchange were included.

“The Evaluation and Monitoring Committee of the government pilot that will enable cash-in and cash-out operations in financial products of deposit on behalf of crypto asset exchange platforms selected nine out of fourteen initiatives that applied for tests,” the FSC explained.

Colombia’s race to become a major crypto player

In 2020, Colombia saw a major boost in crypto use as a store of wealth as well as for transactional purposes, with peer-to-peer lending platforms and exchanges recording historic growth. LocalBitcoins reported that Colombia accounted for 11.3% of its global volume in 2020, making it one of the firm’s “main markets” alongside Russia and Venezuela.

Transaction volumes on Buda.com, one of Latin America’s largest crypto exchanges, grew by 350% between 2019 and 2020 in Colombia, with active users on the platform increasing by 125% to 16,092 according to data provided by the exchange.

The country boasts the highest number of bitcoin ATMs in Latin America, according to Coin ATM Radar. The country has 59 bitcoin ATMs and tellers, with 33 in Bogotá, the capital, alone. In contrast, Panama has only 17 bitcoin ATMs, the second-largest number in the region.

Colombia was embracing fintech more broadly before the pandemic. Local media reported that in 2019 Colombia had 180 fintech companies, up 45% from the previous year.

In September 2020, the SFC, announced a regulatory sandbox for crypto startups to test transactions. Firms could apply to participate in the sandbox through December 31st. The program was designed to “promote a joint test space between the digital ecosystem and the National Government in terms of crypto assets.”

Bargain bitcoin

According to Rivas of Paxful, Colombians can buy bitcoin locally at relatively competitive prices, therefore creating an extremely active internal market and high demand for the crypto.

“They basically have an opportunity to buy bitcoin cheaper and sell at a market price or above elsewhere, which lets Colombians take advantage of arbitrage earnings big time,” Rivas said.

Alejandro Beltrán, country manager for Buda.com, confirmed that bitcoin can indeed be purchased at a cheaper price locally through the informal markets, perhaps because the U.S. dollar is sold in the black markets at least 6%-8% cheaper than the official rates.

Atlas also said that although large exchanges like Buda.com operate in the country, some people choose to trade outside platforms via social media.

“People have group chats on Telegram, Whatsapp, Facebook, more peer-to-peer kind of thing,” Atlas said.

Beltrán confirmed this, adding that Colombia has to process a considerable amount of remittances each year, much of it headed towards its neighbor Venezuela, and that competitive bitcoin prices may arise from the remittance markets as well.