Cryptocurrencies have become an internationally recognised form of payment and financing with greater capacity, better security and faster settlement than traditional financial structures.
Despite all the revolutionary aspects and the growing relevance of the blockchain-based market, the inclusion of cryptocurrencies has become a challenge for authorities since they are extremely volatile assets with no intrinsic value and high liquidity risks. Also, there are no effective safeguards related to corruption, money laundering and terrorism financing.
In line with most legal systems, Colombia does not any have precise regulations on virtual currency transactions, nor does it provide specific rules to be applied to cryptocurrencies. However, the Colombian Central Bank and other Colombian supervisory bodies have already issued a number of official guidelines related to this matter. The Central Bank has, through the enactment of Letter GG-2105 of September 29 2016, stated that cryptocurrencies have no use as local currency. Thus, cryptocurrencies do not constitute a legal form of payment for operations that are to be mandatorily made through the foreign exchange market, such as: a) imports and exports of goods and services; b) foreign investment in Colombia and Colombian investment abroad; c) external indebtedness; d) guarantees in foreign currency; or e) derivatives transactions.
Following public statements from the Central Bank, the Colombian Superintendence of Finance (SFC), through Circular Letter 29 of 2014, has banned financial entities from safeguarding, investing in, intermediating or operating with virtual currencies, and from using their platforms to carry out trade with digital assets.
Despite this, it is important to point out that Colombian regulators and supervisors have not made any reference to such prohibition on individuals or other legal entities not supervised by the SFC. Nevertheless, authorities have advised the public to be aware of the risks involved with these digital assets since they are not covered by any type of guarantee or by deposit insurance.
Although regulating cryptocurrency as money is restricted, it is important to recognise that such instruments have the potential to work as tradable and fungible assets that offer a store of value (or speculation) or represent a commodity, utility or a real world contract. These characteristics have increased the trade of crypto-commodities as derivatives products which can be exchanged in markets in real time (spot) or futures (options). Financial market regulators have accepted their negotiation solely through this modality since such assets are not treated as equity or bond instruments, given that they do not qualify as securities under the Colombian stock market regime.
With their varied applications and the potential to change constantly, the developing cryptocurrencies are consolidating into a varied collection of impressive investment opportunities for enterprises and are set to play a major role in the marketplace. However, the blockchain technology behind digital currency continues to grow and at the moment is outpacing the regulation of cryptocurrencies.