The domestic cryptocurrency market in Chile has been frozen in its tracks. Local crypto exchanges have had their bank accounts suddenly closed without notice, rendering them unable to provide services to their thousands of customers.
Banks Squeeze Exchanges in Chile’s Big Freeze
Major domestic trading platforms Buda, Orionx, and CryptoMarket have had their bank accounts at Itau Corpbanca, the Bank of Nova Scotia, and the state-owned Banco del Estado de Chile closed. Without any explanations offered, the exchanges have submitted complaints to an appeals court.
Some crypto enthusiasts and representatives of the exchanges suspect the government is behind the freeze. CEO and co-founder of Buda, Guillermo Torrealba argued:
“It won’t be possible to buy and sell crypto in a safe business in Chile. We’ll have to go back five years and trade in person. It seems very arbitrary.”
Buda’s exchange volumes are approximately only $1 million USD a day, so the industry remains small. Yet, it had been growing steadily.
CryptoMarket reported that their bank informed them “they had instructions not to open accounts to anyone holding or dealing with cryptocurrency.” Chile is not alone in facing these problems. Bank freezes of crypto exchange accounts have become notorious for threatening to strangle the growing industry and are often conducted under the dubious guise of protecting consumers from risk.
Whether the moves were made as a result of government orders or unilateral behavior by the banks remain unclear. In 2011 the Chilean government established the Financial Stability Board (CEF) of Chile, governed by the Ministry of Finance. The body was established to examine and safeguard the stability of Chile’s financial system.
Set up in the wake of a scandal wherein large retailer and consumer credit provider La Polar refinanced the debt owed by hundreds of thousands of customers without their knowledge or consent to shore up its bottom line, the body has been given full legal authority by the government to enforce policies and codes of conduct.
The CEF has issued seemingly contradictory statements of late. An April 5th publication warned of financial risks posed by cryptocurrencies. Yet, the body has also recently concluded that cryptocurrencies pose no threat to the Chilean economy.
Government, Banks, and the Usual Suspects
If Chile’s government agencies are not concerned with cryptocurrencies, perhaps the banks themselves are concerned about the risks digital assets pose to their bottom lines. Leaving the question open as to whether the decisions were made by regulators or by the banks themselves, the exchanges have sought clarification from the Association of Banks and Financial Institutions (ABIF):
“The lack of knowledge and regulatory clarity has given rise to the fact that some banks, out of fear, misinformation or perhaps by strategy, are refusing to provide their services to anyone who has any relationship with any digital asset.”
Bitcoin Collection with an Earthquake Connection
Chile’s first exchange, SurBTC, also founded by Buda CEO Guillermo Torrealba, established a bitcoin donation address to help victims of the country’s brutal 2015 earthquake. Ironically, the government assisted SurBTC with a donation of $40,000, an apparent gesture of support to a startup that also faced problems with a lukewarm banking sector.
Whether the government has changed its tune or the banking industry’s latest moves are just another episode in the global war between traditional and new asset classes remains to be seen. Hopefully for the country’s growing number of cryptocurrency investors, the appeals court will make a finding that brings clarity to the situation.
Does this look like a government or a banking industry move? Sound off in the comments section below.
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