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Chile's crypto industry sinks further into trouble

Chile's crypto industry sinks further into trouble

Chile’s cryptocurrency industry sank further into trouble this week after a government council issued a warning about the dangers of digital assets and a local cryptocurrency exchange announced it might close some operations after being shunned by a state-owned bank.

On April 5, a council called the Consejo de Estabilidad Financiera (CEF) comprising the heads of the treasury department, the central bank and other government agencies issued a statement calling cryptocurrency transactions a ‘high-risk activity.’

The same day, popular Chilean exchange Orionx told its clients that it would close the accounts of clients investing in Chilean pesos and start returning capital on April 10. This follows a March 29 announcement that BancoEstado would close Orionx’s checking account, which the firm needs to gather money in Chilean pesos to buy cryptocurrencies for clients.

In its statement, the CEF - which stands for ‘council for financial stability’ in Spanish - said digital assets aren’t a threat to the country’s banking and economic systems at the moment. However, it alerted investors about cryptocurrencies’ volatility and potential illiquidity.

‘It is important to mention that in Chile, regulation specific to these assets, their issuers or intermediaries does not currently exist. In this way, and because they don’t have a sovereign issuer backing them that has the responsibility to maintain their value, the central bank has established they cannot be considered “currencies” in legal and conceptual terms.

‘For its part, the [market regulator] has established that, under the current legal framework, cryptocurrencies can’t be considered “securities”.’

The CEF added its warning applied only to digital assets and not to promising technologies like blockchain.

The council added that it had created a working group to continue analyzing if the expansion of crypto-related activities poses a relevant risk to the Chilean financial system.

Orionx’s plight

BancoEstado shut down Orionx’s account because the bank decided to disassociate itself from activities linked to digital assets until these become regulated, according to a letter seen by Citywire Americas.

On April 2, Orionx filed an appeal with a Chilean court to reverse BancoEstado’s decision or to least give it the 60 days that the firm says the law provides to complete the closing.

The appeals court agreed to take on the case but didn’t approve a motion to delay the closure while it issues a ruling, Orionx said.

The firm met with the bank on April 5 to ask it to comply with the two-month period. Orionx said BancoEstado refused, with the account set to shut down on April 9 at midnight.

‘After that, it will not be possible to invest anymore and we will return all the money in Chilean pesos. After that we will shut down the markets in CLP,’ the firm said in its note to clients.

The firm will continue to operate its crypto to crypto exchange, according to the note.

Local platforms CryptoMKT y Buda.com also hold accounts with BancoEstado, according to local news outlet El Mercurio. Last week, Scotiabank and Itaú, reportedly also shut down the accounts of those two exchanges.

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