On May 20, Argentina’s Central Bank (“BCRA”) and the National Securities Commission (“CNV”) issued a joint statement warning about the risks and implications involved in using and investing in crypto-assets. Other countries around the globe have released similar warnings and further prohibitions.
The BCRA and CNV noted that there is not currently a high level of crypto-asset usage in Argentina. However, they acknowledge the need to adopt a precautionary attitude towards crypto-assets. They also recommended that users and investors take a prudent approach in order to mitigate a possible source of vulnerability due to the fast development and growing interest in crypto-assets. For these purposes, the institutions may consider a crypto-asset to be a digital representation of value or rights electronically transferred and stored by using Distributed Ledger Technology or other similar technology.
The statement pointed out that any trader should have access to sufficient information to understand and assess the risks involved in crypto-assets. It highlighted a few central factors of crypto-assets:
i) They do not qualify as legal tender or negotiable instruments and their acceptance is not mandatory;
ii) Their price is highly volatile which can result in significant or complete financial losses for their holders. Their value depends on their degree of public acceptance and therefore can be affected by adverse global events;
iii) Crypto-asset exchange, trading and custody platforms may face operational disruptions or cyber-attacks;
iv) They lack financial safeguards such as those guaranteed to banks and investment services;
v) Users may face incomplete information, lack of transparency or fraud;
vi) They may involve risks of money-laundering, and terrorist financing, and potential non-compliance with foreign exchange regulations. This is because of their easy accessibility, global reach, and limited capacity for monitoring and analysis due to their limited traceability; and,
vii) They may involve possible cross-border transactions outside of Argentine jurisdiction.
In Argentina, crypto-assets are not prohibited nor heavily regulated. No legal framework has been enacted regarding cryptocurrency, there are only some very specific regulations mostly related to reporting and tax regimes. However, two bills were recently introduced before the Argentine Congress, which intend to institutionalize and regulate crypto-assets in Argentina.
Crypto-assets have become part of financial markets despite volatility. The recent plunge in cryptocurrency prices is due to increasing global scrutiny by regulatory bodies with a view to consumer protection and financial stability. Despite the crypto-assets’ decentralization and independence, regulatory measures may provide stability and further growth to a brave new financial crypto-market.