Catch – 22 situation for Crypto Assets Post Banxico Rules – Meaningful Regulation of Cryptocurrency

By Maheen Hernandez March 13, 2019 Off

Cryptocurrency related provisions were published via a circular from Banxico (Bank of Mexico), the central bank of Mexico.  The circular was published in the Official Gazette of the Federation on Friday.  These provisions were provided in detail in a way to clarify the provisions available for the Financial Technology Institutions in Mexico.

Tomas Alvarez, CEO of Volabit, a Cryptocurrency Exchange stated, “This Essentially stipulated that they wouldn’t authorize any cryptocurrency to be offered by regulated financial companies.”

Alvarez further added, “A year ago a law to regulate Fintech companies was passed by the Mexican Congress. This law stipulates that services that hold custody of users’ fiat money or cryptocurrencies (most brokers and exchange business models require this) have to apply for a license issued by the Mexican equivalent of the SEC (CNBV).”

“The deadline was due to expire this month so last Friday Bank of Mexico published their secondary laws which essentially stipulated that they wouldn’t authorize any cryptocurrency to be offered by regulated financial companies.”

This is considered to be a Catch-22 situation because according to these rules any financial service that is not regulated is illegal. With the Fintech law in place, it is not possible to operate an exchange in Mexico.

Officially, this law is currently live and in effect ever since it was published. This applies only to Fintech companies; however, there are no Fintech companies in existence so far as the procedure for becoming a regulated Fintech company is not yet determined by Mexico’s SEC.

There is a special waiver for Fintech companies that are operating in Mexico until the registration process is in place, therefore providing companies with six months breathing period to register themselves for a license.

Bin Ren, CEO of Elwood recently stated “An ETF gives a highly liquid and regulated way to gain exposure. This is the right point to start.’’ However, he opined that a lack of meaningful regulation in place had prevented several institutions from trading the crypto.

Alan Howard, the British Billionaire, will be investing a hedge fund that he owns into blockchain and digital assets.  The Elwood Asset Management will be working closely to bring in institutional investors into the cryptocurrency space.

Previously, Meaningful exposure to digital assets was to buy the Bitcoin; however, several of them were reluctant to buy the Bitcoin for a good reason, which is due to low transparency and meaningful regulation. With significant regulations in place, digital assets and Fintech companies will become an appealing selling point for investors.