🇧🇷 Brazil Crypto Report #2 - Gisele Teams Up With FTX, Bitcoin Beats Inflation, Mercado Bitcoin's Big Raise
Welcome to the Brazil Crypto Report, where we synthesize the key crypto happenings in the southern hemisphere’s largest country.
The meta-thesis for this publication is that Brazil, with a population of 214 million and a US$1.8tn economy, is the most overlooked crypto market in the world. The objective is to highlight the important news and provide useful context for the estrangeiro (foreigner) English-speaking audience.
If that’s something you’re interested in, then hit subscribe and read on👇
There’s some big news to discuss in this inaugural edition with a $200m Series B raise by Mercado Bitcoin and the arrest of Brazil’s “Bitcoin King”.
But before we get to that, we need to talk about the really important news of the week: Brazilian supermodel Gisele Bündchen and her husband, NFL quarterback Tom Brady, now boast an ownership stake in FTX, one of the largest cryptocurrency exchanges in the world.
Per a press release, Gisele is now officially an “environmental and social initiatives advisor” to FTX, which is headed by 29 year-old crypto billionaire Sam Bankman-Fried - widely known across the industry as SBF. Gisele’s and SBF’s shared interest in environmental stewardship was a key motive behind the partnership, she explained:
“What attracted me most about this partnership was the potential to apply resources to help regenerate the Earth, and enable people to lead better lives, therefore generating real transformation in our society. Sam and I are both enthusiasts who share a belief that we are on this earth for a greater reason, and that we all have a role in safeguarding our planet”
The American Football star and seven-time Super Bowl Champion Brady will serve as an “ambassador” to the exchange. It’s unclear specifically how this partnership will unfold, but both Gisele and Brady clearly bring non crypto-native audiences to the table so it’s an intriguing arrangement.
Brazilian Portuguese Lesson of the Week: How to Pronounce Gisele and Tom Brady
It’s rare for a Portuguese word to end with a hard consonant sound, but if it does you typically add an ee sound on to the end. So Facebook becomes FaceBOOK-ee and WhatsApp becomes WhatsAPP-ee. Thus, while in English we pronounce Gisele as “Jih-ZEHL,” in Portuguese it becomes "zhee-ZEHL-ee.”
Another strange rule is that if a word ends in either de or dy, it generally takes on a j or a soft g English sound. Thus, Tom Brady becomes "Tome BRAY-jee”.
Bitcoin Beats Brazil Inflation By 4% in 1H 2021
Despite its decline over the last two months, bitcoin closed out the first half of the year up 19% against the real, making it the best performing mainstream investment in the Brazilian market and the only one to beat inflation during the period, per a report from Exame.
The Índice Geral de Preços ao Mercado (IGP-M), which measures inflation, rose by 15% during the 1H 2021.
Gold lost 11% against the real during the period, while USD was down 4.3%.
The Ibovespa, Brazil’s benchmark index of 70 stocks traded on the B3 stock exchange, was up 6.5%.
Takeaway: Bitcoin as a store of value and hedge against inflation remain key narratives even as the market slows down, and they become even more important when you’re facing 15% inflation in a six month period. It’s been 30 years since Brazil slayed its hyperinflation dragon with the Real Plan, but its becoming a more salient issue as the economy recovers from the pandemic. Bitcoin’s performance versus the IGP-M will be a key theme to watch over the coming months.
Mercado Bitcoin Becomes Brazil’s First “Crypto Unicorn”
The biggest news out of Brazil so far this month has been Mercado Bitcoin’s monster $200m Series B investment from Softbank Latin America, which was announced on July 1. It’s being billed as the largest such round ever in the region. The capital infusion catapults Brazil’s largest crypto exchange to a $2.1bn valuation - making it the eighth most valuable “unicorn” in Latin America and the first “crypto unicorn” in Brazil.
The exchange will use the funds to help meet the “soaring demand for crypto in the region”, per the press release. The release also breaks out some intriguing 1H numbers. The first five months of this year saw 700,000 new users join the platform, bringing its total user base to 2.8 million, and its total trade volume grew to $5bn - which is higher than the combined totals of the exchanges’s first seven years of operation. Mercado Bitcoin is currently the second largest exchange in Brazil by volume, trailing only Binance.
More Mercado Bitcoin figures were divulged by Exame, most notably that the exchange registered 2.6m trades in June - down from 6.4m in May when crypto markets began to taper off. Total trades for the first half of the year were 34.7m, which up 7x from the same period 2020, which saw 5.1m.
Interestingly, bitcoin only accounted for 21% of transactions during the month of June, after Mercado Bitcoin listed 19 new tokens in May. ETH and Chiliz (on the heels of a fan token partnership with the Atlético Mineiro football team) both accounted for 12%, respectively, while XRP trading drove 11% of total volume.
Takeaway: The broader context here is that there is an arms race brewing amongst crypto exchanges angling for the Brazilian market.
In December 2020, Bitso raised $62m in a Series B with the aim of building out its Brazil footprint (followed by a $250m Series C in May). In January, Argentina-based Ripio acquired BitcoinTrade, then the second-largest exchange in Brazil, opting to go the M&A route rather than building from scratch like Bitso. Binance, which is largest exchange globally but is coming under significant regulatory scrutiny, also has a significant presence in the country.
For a further reading, I’d suggest this piece by CoinDesk’s Sandali Handagama from a couple months back which gives some helpful background on the broader Brazil market.
Brazil’s “Bitcoin King” Arrested
Claudio Jose de Oliveira, the self-proclaimed “Rei do Bitcoin”, was arrested by Brazilian Federal Police on Monday in Curitiba, along with several other members of the Grupo Bitcoin Banco (GBB). The operation was the culmination of a three year investigation by authorities into the group.
Oliveira and GBB are alleged to have embezzled R$1.5bn (US $300m) worth of funds from more than 7,000 customers in what appears to be a classic crypto exit scam:
Customer funds sent to GBB’s trading platforms with the intent to purchase cryptocurrency were diverted toward other uses.
Complaints began to arise in 2019 when customers were unable to withdraw their funds.
GBB claimed that their systems had been been hit by a cyberattack which rendered it impossible for clients to withdraw funds.
In 2019, a bankruptcy court ordered GBB to sell the 7,000 bitcoins that it claimed to possess and use the proceeds to pay off customer debts. However, police would discover that those 7,000 bitcoins were not actually held in wallets controlled by GBB.
After failing to follow through on the bankruptcy plan in 2020, the court ordered GBB to cease promotion to new customers and to stop offering unregistered investment contracts.
“Bitcoin King” Oliveira then began to send large amounts of funds to overseas bank accounts set up under his wife’s name.
Authorities arrested Oliveira and his cronies, seizing R$2.5m (US$500k) worth of vehicles, jewels, luxury goods and cash, which will be auctioned to pay off debts. A judge also authorized the seizure of R$5.3m (US$1m) worth of real estate and farmland.
Takeaway: Pretty ugly stuff, though not necessarily new or shocking to anybody who’s been around this industry for a while. Unfortunately, this builds off of other recent scams, most notably the Atlas Quantum boondoggle from 2019 (we’ll get into that in a future edition), and helps to bolster the narrative that Brazil’s crypto landscape is rife with fraudes and pirâmides.
Incoming Securities Commissioner Says CVM Should Pay “Special Attention” to Cryptoassets
Otto Eduardo Fonseca de Albuquerque Lobo, who is the nominee to lead the Comissão de Valores Mobiliários (CVM), made the remarks this week during a confirmation hearing in the Senate. The CVM is the lead securities regulator for the country.
Lobo’s remarks appeared to criticize the CVM’s decision to approve several crypto investment products this year despite the lack of a formal regulatory structure. He said:
“A point that deserves special attention is that of crypto assets, which aren’t regulated in the country. Still, the CVM this year has authorized ETFs, index funds and crypto assets in Brazil.”
In other CVM related news, we have some initial application results from its first-ever regulatory sandbox cohort. Out of 33 applicants, just six advanced to the next stage in the process. The lucky ones will need to complete the next stage of the process by September 30.
Takeaway: Lobo didn’t provide any additional color on the type or level of “special attention” he thinks is warranted here, but it’s an important signal that crypto will be a key issue for him should he take office.
On the regulatory sandbox, these seem to have lost their luster a bit in recent years. The CVM project has been met with positive reception, however, so we’ll be keeping an eye on this as the application process advances.
That’s a wrap for this inaugural edition! I’ll be experimenting with different content and formats over the summer so looking forward to feedback on what is most useful!