🇧🇷 Brazil Crypto Report #7: Digital Real, Inflation Woes + Largest Rate Hike in Two Decades, Axie Fever Continues, Bitso Shake-Up
🇧🇷 Brazil Crypto Report #7: Digital Real, Inflation Woes + Largest Rate Hike in Two Decades, Axie Fever Continues, Bitso Shake-Up
Welcome to Brazil Crypto Report for the week of August 9-13, 2021, where we’re synthesizing the key crypto happenings in the southern hemisphere’s largest country.
In this week’s In-Depth section we break down a revealing talk from a Brazil Central Bank executive about its Digital Real project. In the news recap we discuss runaway inflation, more love for Axie Infinity in Brazil, some leadership changes atop Bitso Brasil and the tragic killing of a Brazilian “insta-bragger” crypto trader.
If you’re new here, 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 if you haven’t done so already and read on👇
In-Depth: Brazil Central Bank Discusses Bitcoin, Digital Real Plans in Public Webinar
Brazil’s Central Bank shared details of their thinking into cryptocurrency adoption and the implementation of a Digital Real in a webinar hosted last week by Blockchain Hub Brasil. The discussion (in Portuguese) is over an hour in duration but had a number of interesting nuggets from Fabio Araujo, a BCB economist and leader of the Digital Real project. Highlights include:
BCB has “no intention of using bitcoin in Brazil” in the same manner as El Salvador or Argentina
The bank will begin testing the Digital Real in 2022 using blockchain technology, but the intention is not to due away with physical cash
The Digital Real will likely feature integrations with smart contracts and decentralized finance to develop an open financial system
The Digital Real will feature the same levels of privacy available currently in the financial system
Brazil’s Central Bank has “no intention of using bitcoin in Brazil” in the same manner as El Salvador or Argentina
Araujo discarded the possibility of Brazil adopting bitcoin as legal tender or an alternative financing vehicle, stating:
“We see bitcoin as a speculative asset - high volatility asset. Therefore, we have no intention of using bitcoin-denominated contracts in Brazil. We also have no intention of prohibiting people from using bitcoin.”
The bank will begin testing the Digital Real in 2022 using blockchain technology, but the intention is not to due away with physical cash
Araujo affirmed that testing for Digital Real will begin in 2022. While the system will be tested using blockchain, he said, there is no certainty that the final product will use blockchain vis-a-vis a different form of underlying tech. He stated:
As it relates to blockchain, if we use it, we have not decided on whether it would be public or permissioned. To determine the best strategy you need to understand the use cases. We have a general vision of smart contracts but don’t yet know which use cases the market would want. We will begin next year with proofs of concept to compare technologies and applications.
He reiterated that the Central Bank tested blockchain in a similar capacity as far back as 2017, however there were problems with scalability and data privacy that stalled the project.
The digital real would not do away with cash, Araujo emphasized, but would rather supplement it and other financial innovations with which the bank is involved:
We want a system in which people can use two monies of the same form. The BC’s intention is not to use a Digital Real to substitute for physical money. The BC believes that it is important to give people options. Our intention is to make it easier for people for people to transact in the digital world so that the physical Real is no longer necessary for people, in the same way that checks are no longer necessary today.”
The Digital Real will likely feature integrations with smart contracts and decentralized finance
The BCB is thinking of the Digital Real as a type of native token in the broader financial technology ecosystem which it kickstarted with Pix, the real-time payment system launched late last year by the bank, and its open banking efforts. Araujo said:
“Open banking will create a circular information ecosystem of among the participants of the national financial system and create new services in which the (Digital Real) would be the liquidity tokens and point of liquidity in the new digital financial services that may arise due to open banking.”
The Digital Real would ideally allow for the interlinking of the national financial system and the world of decentralized finance and smart contracts, he added:
“We see the DeFi market that is arising and brings a new way of presenting financial services that can be much more suitable for the population. You have an ability to use and manipulate contracts in this environment that you don’t have in the traditional banking environment.”
The Digital Real will feature the same levels of privacy available currently in the financial system
The BCB will guarantee the privacy of transactions involving the Digital Real but will not serve as the central repository for all payments in the country, Araujo stated.
However, he downplayed the importance of the broader theme privacy in such a system, asserting that this is more of a concern for crypto-native people than common citizens:
“People today who are accustomed to using tools in the crypto space, a good portion of them think that privacy is something very important and that having information separated from any centralized system is very important. But the majority of people don’t see it this way.”
He emphasized that a world without privacy currently exists where everyone uses mobile phones and services like Apple and Google, and that frameworks like GDPR are in place to protect consumers against overreach.
In light of that, Araujo believes that the Central Bank being the issuer and guarantor of the digital real will not be a problem and, on the contrary, will help to fortify trust in the system.
“The majority of people do not have a problem with their data in a centralized database as long as they have confidence in the institution that is keeping that data. Currently our data is held in banks, central banks and governments and will maintain that same level of privacy for the citizen with the new digital currency.”
News Recap
Brazil Inflation Hits 9%; Central Bank Fights Back With Largest Rate Hike in Two Decades
Consumer prices continued to rise in July as Brazil’s ICPA benchmark index jumped 0.96% from the prior month, marking the largest monthly increase in five years and the largest increase for the month of July in 19 years, according to Bloomberg.
The ICPA over the 12 month period now stands at 8.99%, well above the Brazilian Central Bank’s inflation target of 3.75% and well above analyst expectations.
In response, the Central Bank increased its benchmark SELIC interest rate by 100 basis points to 5.25%, marking the largest hike in 18 years. Rates are now up 325 basis points since March.
According to reporting by Reuters, Brazil’s real interest rates are the second highest out of 40 large economies globally.
Adriana Dupita, a Brazil economist at Bloomberg, posited that the discrepancy between markets’ expectations and the actual price data likely indicates that the BCB is worried about its credibility as it relates to taming inflation, adding:
“We now see the Selic at 7.5% by the end of this cycle, with a 100 basis-point hike in September followed by a 75 basis points in October and 50 basis points in December.”
Brazilians ❤️ Axie Infinity
The Brazilian love affair with the popular “play to earn” blockchain game Axie Infinity continues.
A report from Money Times noted that AXS, the game’s native token, was the second most traded token on Mercado Bitcoin - Brazil’s largest crypto exchange - for the month of July. AXS made up 12% of total trading volume, behind bitcoin (19%) and ahead of ether (10%).
By comparison, in the prior month of June the token’s trading volume was basically zero - a measly 0.19%. Mercado Bitcoin’s Fabricio Tota explained:
“The Axie Infinity trading volume accompanies the growing interest in the game around the world, one that allows players to actually earn money to play. In just one year, the ‘market cap’ of the token jumped from a few million dollars to more than US$2.5bn.”
Foxbit, another exchange in the Brazilian market, also listed the AXS token last week. In a statement to Money Times, Foxbit CEO João Canhada said the decision was made in response to overwhelming customer demand:
“Foxbit is always listening to customer input and Axie was one of the tokens most requested to include on our platform. We have an obligation to always offer crypto assets and crypto currencies that we believe in and make sense to our users.”
Hashdex ETH ETF to Launch August 18 on B3 Stock Exchanage
The Hashdex Nasdaq Ethereum ETF will go live for trading on Brazil’s largest stock exchange Wednesday, August 18. The ETF, with the ticker symbol ETHE11 offers investors 100% exposure to ether, the second largest cryptocurrency by market cap.
The asset manager is coordinating with XP, Itaú BBA and Banco Genial to administer the fund, which will charge a 0.7% fee. The share price at launch is expected to surpass R$50 (~US$10).
Samir Kerbage, CTO of Hashdex, told Money Times:
“Ethereum is one of the principle platforms that serve as a base for the next evolution of the internet, known as Web 3.0. Its token, ether, is the gas that powers this new internet and has great potential to appreciate as the technology evolves and adoption increases.
ETHE11 is a product that will give access to this generational opportunity of simple, secure and regulated to any person - whether they be a small retail investor or a large institution.”
With the listing, there will now be five crypto-specific ETFs trading on Brazil’s B3 stock exchange. For those of you keeping score at home, the United States currently has zero.
Leadership Change Atop Bitso Brazil as It Ramps up Local Efforts
Marcos Jarne left fintech unicorn Nubank to join Mexico-based Bitso in November 2020 to serve as Bitso’s Brazil Country Manager. Last week, he stated on Linkedin that he was leaving the exchange after 10 months on the job. Bitso CEO Daniel Vogel will assume interim leadership responsibilities for the exchange’s Brazil operations.
The leadership transition comes as Bitso is focusing more resources on the Brazilian crypto market.
It’s unclear what the prompted Jarne’s departure, though there have been no shortage of abrupt and mysterious crypto exchange executive resignations this summer due to regulatory pressures. This could be a continuation of that trend, though it’s equally plausible to take Jarne’s “mission accomplished” claim at face value given that he succeeded in getting Bitso off the ground in Brazil and is now ready for his next assignment.
In an interview with Brazil Journal, Vogel signaled his intent to invest $280m into building a product that will compete with the likes of Mercado Bitcoin in the local market. Bitso officially launched in Brazil at the end of May.
Vogel, who recently relocated to Brazil, intends to deploy these resources over the coming 12 to 18 months to improve Bitso’s technology, launch new products and build out the local team. He explained:
“I moved here because we believe that, in the medium-term, this will be our most important market.”
Bitso has 2.5m clients across Spanish-speaking Latin America, most notably in Mexico and Argentina. Vogel aspires to have one million users in Brazil within one year’s time.
Wealth Flaunting Crypto Trader Shot Dead Outside Cabo Frio
A 19 year-old crypto trader with 133,000 Instagram followers and 15,000 YouTube subscribers was shot dead in the city of Sao Pedro da Aldeia, near Cabo Frio and east of Rio de Janeiro, as he was driving to a hairdresser appointment.
According to The Sun, the trader had built up a following flaunting the vast sums of cash and luxury goods he’d earned by trading crypto in recent years.
It’s unclear whether the attack was specifically due to his influencer status or unrelated, but it’s a good reminder for folks to practice basic op-sec procedures if they are going to be dabbling in crypto.
Pix Hits a Record 40 Million Transactions in Single Day
Pix, the real-time payments application rolled out by the Brazilian Central Bank in 2020, processed 40.5m transactions in a 24 hour period on August 6.
According to Exame, the payments totaled US$4.63bn in volume, with an average of US$115 per transaction. The Central Bank previously disclosed 45% of the economically active population is currently using Pix.
Did I miss anything? Have ideas for new content, topics or formats? Leave a note in the comments or find on Linkedin, Twitter or Telegram at @AaronStanley. Thanks for reading!
Até mais,
Aaron