The exchanges are appealing against the decision saying it might kill cryptocurrency trading in the country. The market regulator says cryptocurrencies do not fit as “securities” while the central bank says they cannot be considered “currencies.”
Buda, Orionx, and Cryptomkt cryptocurrency exchanges, which are based in Chile, are seeking to have the decision by banks in the country to suspend their accounts. They have applied for an appeal at the Court of Defense of Free Competition (TDLC).
Currently, the banks, including the state-owned Banco del Estado de Chile are also not allowing registration of new accounts by cryptocurrency exchanges. Banco del Estado de Chile, which has provided banking and financial services to smaller enterprises and the unbanked in the country, gave the three exchanges a notice at the start of this month.
This notice was after the exchanges received accounts termination notifications from The Bank of Nova Scotia and Itau Unibanco Holding S.A of Brazil. The two closed the exchanges’ accounts in March without explanations.
The lawyer representing the exchanges said the move is “an abusive exploitation of a situation of economic dependence.”
Although the cryptocurrency market in the country is small, it is burgeoning. Already, there are local Chaucha and Luka digital coins.
Buda facilitated around $1 million USD worth of cryptocurrency trades daily before the decision. This is huge compared to the $2 billion for the world’s biggest exchanges
Buda’s co-founder and chief executive officer, Guillermo Torrealba said the banks would “kill an entire” through the move, and make it difficult to buy and sell cryptocurrencies in a safe business in the country.
“We’ll have to go back five years and trade in person. It seems very arbitrary.”
Orionx received a notice of account closure from BancoEstado on March 29. Later, the cryptocurrency exchange informed its users investing in pesos that it would refund capital. Further, Orionx said it will continue to facilitate trading for crypto-to-crypto pairings despite the embargo requiring the exchanges to return funds held in fiat currency to investors.
Many are suspicious that the directive is by a government (though not public) because Chile’s Financial Stability Council (Consejo de Estabilidad Financiera (CEF)) warned of risks related to investing in cryptocurrencies earlier this month. The has representatives from the Finance Ministry, central bank and the securities, banks, and pension funds, regulators.
Although the council said cryptocurrencies are not a threat to the country’s banking and economic systems at the moment. It alerted users of their volatility and potential illiquidity.
The developments point to a lack of proper regulation on cryptocurrencies. The market regulator said cryptocurrencies do not fit into “securities” category in their current framework. On its part, the central bank said they do not fit the description of “currencies” in legal and conceptual terms.