Mexico has seen a rise in both the popularity of cryptocurrencies and interest in the blockchain technology over the past few years. Indeed, Statista predicts that in 2023 around 12 million people will use cryptocurrencies in Mexico, a steep increase from 1.06 million users in 2020. Similarly, Bitso — a crypto exchange founded in Mexico in 2014 — reported a 342% increase of its trading volume in 2020 alone. Another indicator pointing towards growing crypto adoption is the number of Bitcoin ATMs in operation, which has increased from 14 in April 2022 to currently (May 2023) 43 across the country. Also the private sector shows interest in adopting the blockchain technology and cryptocurrencies: The report “Encryption Trends in Mexico 2020/2021” published by the Ponemon Institute concludes that out of the 353 surveyed representatives from companies throughout Mexico, 40% were keen to adopt DLT/blockchain and/or cryptocurrencies in some form.
There are several factors contributing to this growth of the crypto sector in Mexico. First of all, Mexico has experienced economic uncertainty, currently facing a weak economic outlook with the Mexican Peso loosing value combined with high inflation rates. As one consequence, Mexicans are turning to digital assets as one alternative store of value — a trend that is observed across the region.
Another prominent driver is the large inflow of remittances into Mexico. According to the Migration and Development Brief 36 published by the World Bank, Mexico ranked second in the list of recipient countries for remittances in 2021 with a total of USD 54 billion — a number that is increasing year by year. In the broader context, cryptocurrencies, and especially Stablecoins, are considered a cheaper and faster way to transmit remittances back home compared to traditional methods. In fact, global numbers show that within one year (2021–2022) the use of cryptocurrencies for sending remittances has grown by as much as 900%. Thus, it is not surprising that crypto companies have started setting up operations in Mexico to claim a share of that market: Just to name two examples, in February 2022, Coinbase unveiled a new crypto transfer service tailored to U.S-based customers to send remittances to Mexico; while Bitso offers crypto services for remittance companies and closed agreements with such companies to use Bitso’s infrastructure to transfer funds to the Latin American region.
Lastly, Mexico is at the forefront of the Fintech developments in Latin America in an attempt to facilitate access to financial services for its roughly 40 million unbanked people. In that, blockchain is also seen as a potential way to close this gap and to achieve greater financial inclusion: Besides various Fintech and blockchain startups introducing new product and service offerings, Banxico — the Mexican Central Bank — is exploring the launch of a Central Bank Digital Currency (CBDC). Originally, its rollout was planned for 2024, yet due to Banxico still clarifying legal, administrative and technological requirements, this date will most likely move.
Turning the focus to the regulatory landscape, it is to note that Mexico started regulating the sector relatively late. The first milestone in this regard is the Ley para Regular las Instituciones de Tecnología Financiera (the Law to Regulate Financial Technology Institutions, also known as the Fintech Law) that came into effect in March 2018, and was last updated in May 2021. This law was introduced to create a suitable environment for a healthy development of the Fintech sector and to provide the necessary regulatory tools for Fintechs to operate and expand. Important for the crypto sector is that the Fintech Law introduced in chapter III a first legal concept for activas virtualos (“virtual assets”) and assigned their regulation to Banxico.
At its core, the approach taken by the Mexican regulator distinguishes between two use cases of virtual assets, which are then regulated differently:
(i) Use of virtual assets by individuals and non-financial institutions (in e.g. companies that are not part of the financial system): This use case is only loosely regulated.
(ii) Use of virtual assets by financial institutions: This is highly regulated through the Fintech Law and Circular 4/2019 issued by Banxico and has to be approved by Banxico.
All subsequent regulations follow this logic.
Further, together with the enactment of the Fintech Law, the country’s AML/CFT legal framework was updated to specifically include cases involving virtual assets. These amendments were based on international standards, in particular the Financial Action Task Force Recommendation (see our previous article Overview of measures to detect and prevent money laundering and financing of terrorism involving digital assets for more detailed information).
Interested to learn more about the digital asset scene in other Latin American countries? Then have a look at our articles about Brazil, Argentina, Colombia and Chile. Enjoy reading!
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