Mexico's Crypto Regulation: Bitcoin Banned from Financial System

Mexico’s approach to cryptocurrency regulation is characterized by caution and a deliberate effort to exclude crypto from its official financial system. While Bitcoin is not considered legal tender, financial institutions are prohibited from handling it without explicit approval from the Bank of Mexico (Banxico), which has not yet been granted. Failure to comply with this directive could result in the suspension of the institution's account.

Understanding the regulatory landscape is crucial for businesses, investors, and crypto enthusiasts operating in Mexico. As crypto adoption and platforms, particularly among the youth and fintech sectors, continue to grow, it is essential to be aware of the legal boundaries for running crypto ventures. Several regulatory bodies, including Banxico, the Ministry of Finance and Public Credit (SHCP), and the National Banking and Securities Commission (CNBV), oversee Mexico’s crypto landscape. These agencies collaborate to foster innovation while ensuring financial system stability and compliance with global standards.

The legal framework for cryptocurrency in Mexico began to take shape in 2018 with the enactment of the FinTech Law, which provided a comprehensive regulatory structure for financial innovation. Key milestones include the classification of virtual assets and the imposition of anti-money laundering (AML) rules on crypto service providers in 2018. In 2019, Banxico issued Circular 4/2019, limiting the involvement of financial institutions in virtual asset operations. In 2021, a joint statement from Banxico, SHCP, and CNBV reiterated that cryptocurrencies are not legal tender and are illegal within Mexico’s financial system. These steps reflect Mexico’s efforts to integrate innovation with financial stability and consumer protection.

Businesses involved in crypto, classified as Virtual Asset Service Providers (VASPs), must register with the Tax Administration Service (SAT) and adhere to AML regulations. Foreign companies offering services to Mexican users are also required to register. Virtual assets can technically be used by financial institutions only with Banxico’s authorization, but no such approvals have been made to date. All crypto exchanges must comply with the Federal Law for the Prevention and Identification of Operations with Illicit Proceeds, which includes conducting customer due diligence, reporting suspicious transactions, and declaring transactions over approximately $2,849 USD to the authorities. These measures aim to align Mexico with the Financial Action Task Force (FATF) Recommendation 15 on crypto regulation.

Cryptocurrency is treated as movable property under Mexico’s FinTech Law, and capital gains tax is triggered by buying or selling crypto. The tax rate varies from 1.92% to 35%, depending on the amount and individual income level. There is no dedicated crypto tax regime, which adds complexity to reporting obligations. Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) have no explicit regulation, but if considered securities under Mexican law, they must comply with CNBV’s securities regulations.

Cryptocurrencies are not legal tender in Mexico and cannot be used within the formal financial system. A 2021 joint announcement by Banxico, SHCP, and CNBV reaffirmed this stance. While individuals and non-financial businesses can legally use and trade crypto for private transactions, these activities are regulated. There is no specific regulation for crypto mining, but large-scale operations may be subject to energy consumption laws. The government has actively adopted blockchain technology, with projects like the development of a Central Bank Digital Currency (CBDC) set to launch in 2025, and initiatives such as Blockchain HACKMX and GrainChain aimed at enhancing transparency and the agricultural supply chain.

Non-compliance with AML or tax obligations can result in monetary fines, asset seizures, and in extreme cases, criminal charges. Mexico’s FinTech Law includes a regulatory sandbox where fintech and crypto startups can test innovations for up to two years in a controlled setting. While few approvals have been granted, this indicates Mexico’s openness to future innovation. Crypto platforms like Bitso have gained significant traction, with 8 million users, and blockchain firms such as Backbone Systems and Pixelette Technologies are developing domestic blockchain infrastructure. The government’s collaboration with projects like LACChain further demonstrates its interest in blockchain integration.

Despite having a national regulatory framework, Mexico faces challenges in enforcing crypto regulations due to the pseudonymous nature of crypto and the emergence of decentralized finance (DeFi). Public perception of crypto is cautiously optimistic, with younger demographics showing greater interest, while older demographics and mainstream media remain wary, viewing crypto as a platform for scams or illegal activities. Overall, Mexico offers a measured and evolving regulatory environment for cryptocurrency, with AML and tax perspectives placing crypto outside the formal financial system. However, individuals and non-financial entities can engage in crypto activities, making it a region to watch as the CBDC launch approaches.