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Argentina was on the verge of a cryptocurrency boom, but the country's central bank had other plans.

14 May 2022 By : COIN GABBAR
Argentina was on the

Argentina was on the verge of a cryptocurrency boom, but the country's central bank had other plans.

Banks were astonished when the local monetary regulators prohibited them from trading cryptocurrency, but local exchanges were unaffected.

Argentina is experiencing a crypto explosion. In 2021, the stablecoin sector surged sixfold as millions of new consumers came into the market. The country is ranked tenth in Chainalysis' crypto adoption ranking. Local circumstances are ideal for implementation: 58 percent inflation, currency depreciation, and an absence of availability of US cash. Crypto is the best solution for many Argentines to protect their wealth.

Banks were stepping in as well. Last Monday, Banco Galicia (GGAL), the country's largest bank by market capitalization, offered the ability to purchase and sell cryptocurrencies to its platform.  Users can now purchase bitcoin, ether, USDC, and XRP using the bank's app's investing area. The private digital bank Brubank started delivering comparable services on the same day. Both seemed to be significant steps toward crypto acceptance in Argentina.

Argentina's Central Bank (BCRA) then attempted to hit the brakes.

The BCRA restricted banks from selling services for any digital assets not authorized by the central bank on May 7, just days after the banks' disclosures. In other words, banks can no longer directly facilitate the purchase or sale of cryptocurrency. Banco Galicia's brand-new service had to be terminated.

However, it wasn't a complete ban: Argentines can still send and receive pesos through their bank accounts when trading on local cryptocurrency exchanges.

The crypto banks were caught off guard by the embargo. According to sources close to the situation, Banco Galicia received informal consent from the BCRA to start its new feature, stating that a Nasdaq-listed bank would not get into crypto without formal support from the local authority. Furthermore, there was no specific rule prohibiting financial firms from working in the crypto industry at the time.

After Banco Galicia, four other Argentinian financial firms planned to start a cryptocurrency exchange platform, according to Lirium, a Liechtenstein-based crypto business that was going to run the function provided by Banco Galicia.

The reasons for the BCRA's conclusion have sparked a lot of debate. The BCRA's desire to impress the International Monetary Fund (IMF) is one of the biggest concerns, following the country's $45 billion debt deal with the organization in March, which contains a clause prohibiting the usage of cryptocurrency.

Read also Argentinian Senators enacted a new law that obstructs cryptocurrencies and subjects them to taxation.

However, the BCRA stated that "digital currencies are not officially an aim or baseline of the program" in response to a request for information from the local non-governmental organization, Bitcoin Argentina, a few weeks ago.

The BCRA's restriction, according to sources close to the case who were not permitted to talk publicly, stems from the lack of understanding of the crypto world and a belief that banks will demand US dollars to acquire and trade crypto.

The monetary regulator's biggest priority right now is the scarcity of US dollar reserves, particularly liquid reserves, which consultancy firms estimated to be negative. For example, Argentines are unable to obtain more than $200 per month via banks due to this shortage, and several industries have operational challenges due to import limitations.

Banco Galicia, on the other hand, was trying to acquire its crypto through a liquidity loop sponsored by OSL, a Hong Kong-based digital-asset trading platform that started operations in Latin America last October.

Exchanges are cautious.

The BCRA's ruling has had no impact on Argentine cryptocurrency exchanges. They are, however, anxiously waiting for indications. Lemon, a crypto exchange based in Argentina, has crossed 1 million customers, according to the firm. Belo, a cryptocurrency exchange that launched in September 2021, has already achieved 170,000 customers and expects to reach a million users by the end of the year at a 100% monthly growth rate.

According to officials at the monetary authority, the BCRA has no plans to take action against trades for the time being. It's comprehensible: Exchanges are assisting Argentines in their desperate need to get rid of their pesos in the face of a foreign currency limitation that bans them from obtaining dollars via banks. And none of the enterprises use BCRA's reserves to perform their operations.

Exchanges are hesitant in any scenario, as it becomes clearly evident that the present administration is anti-crypto. It's not the first time the BCRA has intervened. It launched a probe against nine fintech firms in June, alleging that they were providing improper financial intermediaries using crypto-assets. There were no more developments in that investigation.

However, the monetary authority still has not prevented these financial firms from interacting with marketplaces, at least for the time being. That would be a headshot of the Argentine cryptocurrency sector.