🇧🇷BCR #54: Bolsonaro Says He "Never Messed" with Bitcoin; Doesn't Know What it Is
Also: Campos Neto says Banco Central won't regulate crypto sector with a "heavy hand"
Greetings and welcome to 🇧🇷Brazil Crypto Report for the week of August 8-12, 2022. I’m currently on a plane coming back to the US from Lisbon where I was scoping out some venues an activation around Web Summit in late October/early November. There’s going to be a flurry of tech and Web3 events happening in that window so hope to see some of you there!
As always, I appreciate you reading and hope you enjoy this week’s edition.
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Campos Neto lays out visions for crypto regulation and Digital Real
Banco Central president Robert Campos Neto gave his first presentation 100% devoted to the topic of crypto assets at an event sponsored by law firm Figueiredo & Velloso Advogados. In his presentation, he emphasized that the Digital Real will be a bridge between the Web3 world of tokenized assets and decentralized finance and “Web2” innovations pushed by the BC like Pix and Open Finance.
This will lead to a reality in which current mainstream financial products like credit cards will be made redundant.
“This consolidated system eliminates the need to have a credit card. I think the credit card will cease to exist at some point soon.”
“I think at some point you're going to take your phone, open it, and you're going to have an integrator that's going to assemble your entire virtual and physical financial life in the same place.”
He articulated that the BC, likely to be appointed to regulate crypto markets upon legislation passing, will prioritize transparency in digital asset markets and will not regulate the sector with a “heavy hand” - namely to promote innovation in a manner that harmonizes the digital and physical worlds rather than pushing them apart. He drew a marked contrast between his view and those taken by other countries that have taken a more strict approach.
In general, central bankers want to regulate with a heavy hand. I understand, but I don't agree. Maybe it's a regular mistake like that […] We shouldn't leave behind the technological advances that will come with it
"The more you push [in regulation], the harder it will be to see what is happening, and it will distance the decentralized world from the regulated world….“I want to integrate the digital world with the regulated world, do it differently from what other BCs are doing.”
This CoinTelegraph Brasil article has Campos Neto’s full slide deck from his presentation. You can watch the full video below.
Making the pitch to Febraban
Campos Neto and Digital Real coordinator Fabio Araujo also took to the Febraban Tech conference, to discuss the Digital Real in more depth. Campos Neto provided additional color around his vision for the Digital Real - namely, that the project will “put together” all of the various components of financial innovation that the BC has promoted in Brazil recently. “The objective is to connect the initiatives in a digital wallet,” he said.
He stressed that the Brazilian CBDC will be significantly different from others being developed around the world in that it will have an interaction between the real, regulated world and decentralized finance.
A major challenge facing the Digital Real project, he noted, is ensuring that is innovative and unique to Brazil while ensuring interoperability with CBDCs being developed by the rest of the world - many of which have vastly different visions from the Digital Real.
“The world is not in sync about the creation of CBDCs…If each country makes a different currency, we will continue in the same system as today, which is not efficient”.
Digital Real vs Private Banks?
The question of the Digital Real potentially disintermediating private banks and subsequent liquidity issues is heavy on the mind of Brazil’s tradfi banks (Febraban is a trade group representing the banking industry). Specifically, because the Digital Real will be a liability of the Banco Central, the ability of private banks to issue credit could be impacted.
While specifically affirming that many CBDC models being pursued around the world currently will have an interfere with banks’ ability to provide credit, Campos Neto and Araujo laid out their plan to avoid this fate - namely that private banks will be able to tokenize deposits, hold them with BC and then issue their own stablecoins against those deposits as a means of guaranteeing loan liquidity and circumventing credit risk indirectly created by the Digital Real. Araujo said:
“To counter this scenario, what the Central Bank has in mind is that bank deposits can be tokenized in a wallet (digital wallet) held by the bank, in a liability again of the bank. So you could use a CBDC, which is a Central Bank liability, or a stablecoin which is a bank liability.”
“With this, the liability will not be of the BC, but of the bank, which will continue with the possibility of multiplying liquidity and will still have access to the services that Web3 will bring, such as the blockchain finance services that are being created in the asset environment. digital.”
Campos Neto explained further:
“Our CBDC model, with tokenized deposits, encourages credit. With our model, we solve problems of bank balance sheet corrosion…If anyone wants, at settlement, to convert that stablecoin into a currency issued by the BC, we will ensure that every stablecoin is transformed one-to-one into a digital currency.”
While these concerns can be allayed by adopting a “wholesale” CBDC model that is used privately by large financial institutions rather than retail end-consumers, Campos Neto dismissed this model as a possibility:
“Our opinion is that using CBDC only for wholesale or for cross-border payments is to think small.”
BC’s Digital Real lab to launch in September
The Banco Central’s Digital Real lab will launch in September, Araujo also announced at the Febraban event. It was originally supposed to launch in July but was postponed due to a worker strike. The goal with the lab is to incubate several projects that it can be tested alongside the CBDC’s development. The Digital Real itself is expected to begin testing in 2023 and go live in 2024.
New CVM chief promises “non-invasive” regulation for crypto assets
João Pedro do Nascimento, the new head of the CVM (the Brazilian securities regulator), said that he is making crypto a priority for his tenure at the agency in a wide-ranging media blitz featuring interviews with Valor, InfoMoney and Bloomberg.
“There is a current demand for cryptocurrency regulation. This demand is present in Brazil and is a consequence, it is a natural unfolding of the evolution of technology. Here at the CVM, we are attentive to a zone of competence that is our zone, to work on a non-invasive regulation of crypto, as far as the capital market is concerned.”
Part of his mandate will be to continue developing the CVM’s regulatory sandbox, of which there are currently three projects that are using blockchain for asset tokenization.
Also, establishing definitions for when a cryptocurrency is classified as a security vs a commodity, and distinguishing currency from investment, will be a key priority. These questions become tricky definitions involve overlapping federal and state laws.
“Although today there is no specific law regulating crypto-assets in Brazil, it is already possible to establish some limits in relation to the contexts in which an operation involving crypto-assets is actually disguised as a collective investment operation”
The CVM is preparing an advisory opinion on digital assets with general directives and recommendations that aims to give market participants guidance to work from while more formal regulation becomes finalized.
Nascimento will also prioritize more restrictions on YouTubers and other digital influencers who are recommending investment products.
Bolsonaro shares his thoughts (or lack thereof) Bitcoin on Flow Podcast
President Jair Bolsonaro went on the Flow Podcast - essentially the Brazilian version of the Joe Rogan podcast - for an epic five hour interview where he discussed, amongst many other topics, his lack of interest in bitcoin.
“I never messed with it,” he commented
When asked by Igor, the host, if he would take any action to regulate the Brazilian crypto market, he punted and said he would need to consult Paulo Guedes, his Minister of Economy.
“I'm going to ask Paulo Guedes, because I don't know what Bitcoin is, I don't know what it is. I think most people don’t know.”
Bolsonaro’s government has, however, made it clear that it sees blockchain technology adoption as an important priority for economic and digital transformation. He also signed a decree in 2022 encouraging the adoption of blockchain tech.
Bolsonaro also brought up his decision to cancel a bizarre R$44m grant from Funai (the National Indian Foundation) to Universidade Federal Fluminense at the outset of his presidency that would have created a cryptocurrency for indigenous peoples, among other things.
“I found out that Funai had a contract worth R$50 million to teach Indians how to handle bitcoin. In the transition, let's [sic] cancel it there. […] It's dirty”
The contract itself had nothing. to do with bitcoin, but Bolsonaro and his allies frequently invokes it as a means of criticizing former president Michel Temer, who signed off on the deal.
Naturally, the live YouTube chat was flooded with people promoting Bolsonaro NFT scams
As of press time, the full YouTube interview had more than 14 million views.
🎙Be sure to check out the latest episodes of the 🇧🇷Brazil Crypto Report podcast. This week I talked to Isac Costa, who is a former CVM regulator and a professor at Insper and IBMEC. Isac has been tracking the Brazil crypto legislation saga closely and intimately understands the issues and dynamics at play. We jump in and chat for 90 minutes about every aspect of the crypto bill being considered by the Brazilian Congress.
It took us two attempts at recording this to make sure we got it right, and I think we nailed it this time. So if you looking to get smart fast on the Brazil crypto regulatory situation, make sure you carve out time to listen to this.
🗞Brazil Crypto News Rundown
PicPay officially enabled bitcoin and Ethereum purchases for its Brazilian customers via a partnership with Paxos. The service only offers buying (with a minimum purchase of R$1) and selling and does not permit external withdrawals, the later this year users will be able to send and receive crypto transfers. The launch marks the first step in a broader plan to bring crypto-powered payments to a network of 1.5 million commercial establishments by year’s end.
The fintech also plans to launch its own BRL-pegged stablecoin later this year. Bruno Gregory, head of crypto and Web3 at PicPay, commented:
“We want to carefully select the cryptocurrencies and tokens that will be part of our platform so that our audience has access only to products that have a practical use and that make sense for trading. That's why we put bitcoin and ether, which are the two largest currencies, present in various applications, and the dollar stablecoin, which has the practical application of currency protection,” (Money Times) (Valor)
MB Tokens released its 10th digital fixed income token, the CSCON05. 19,000 of the tokens will be offered, which will have a unit value of 100 BRL and an estimated annual return of 17.98%. MB Tokens claims to have issued R$170m worth of asset-backed tokens this year. Vitor Delduque, director of new business at MB Tokens, commented:
“We have had an extremely positive return since the launch of the first consortium quota in February. In response to the market, the new batch is another step towards maturing and consolidating the ecosystem of alternative assets in the investor's portfolio." (Portal do Bitcoin)
CoinTelegraph Brasil had a useful article examining how crypto exchanges will be able to compete with tradfi banks and fintechs entering the Brazilian market.
Brazilian exchange BlueBenx suspended customer withdrawals for at least 180 days while claiming to have been “aggressively” hacked in an incident that the company says resulted in a loss of R$160m (US$31m). Many customers, however, are skeptical about the hack claim and reckon that it’s an exit scam. One customer told Portal do Bitcoin: “I think there's a high probability that it's a scam because this whole hacking thing seems like a lot of bullshit, something they made up”
BlueBenx was investigated by the CVM previously for an “irregular offering” of bitcoin products to clients. In an email to customers, the company stated:
“Last week we suffered an extremely aggressive hack in our liquidity pools on the cryptocurrency network, after incessant attempts at resolution, today we started our security protocol with the immediate suspension of operations of BlueBenx Finance products, including withdrawals, redemptions, deposits and transfers.” (Portal do Bitcoin)
Shares of publicly-listed bitcoin miner Marathon Digital were the ninth most-traded equity by Brazilian investors in July. (Exame)
Digitra, the crypto exchange recently launched by Mercado Bitcoin founder Rodrigo Batista, incorporates a “trade to earn” approach whereby users earn the exchange’s DGTA token for trading on the exchange. (Valor)
XP Investimentos previewed Xtage, its cryptocurrency trading platform, at Expert XP conference earlier this month. It will rollout the product to one million of its 3.6 million customers beginning in September. Xtage marks XP’s second attempt to enter the crypto market; it launched XDex in 2018 but ultimately shut down the platform due to lack of demand. This time, however, there is ample customer demand, said Lucas Rabechini, director of financial products at XP:
“We did a survey of our customer base and asked whether or not the person had crypto assets in custody. We were surprised, because of the respondents to this survey, about half said they had cryptocurrencies. And of that half, 88% said they would like to have it on XP. This strengthened our hypothesis.” (Portal do Bitcoin)
Two Brazilian developers launched Vinteum, a research and development center dedicated to supporting and training bitcoin developers in Brazil and Latin America. Lucas Ferreira of Lightning Labs and Andre Neves of Zebedee will serve as the group’s primary executives. In addition to launching, Vinteum also announced its first grantee - Bitcoin Core developer Bruno Garcia. (CoinDesk)
Mercado Livre, Latin America’s largest e-commerce firm, will expand its crypto buying and selling services into the rest of the region after a successful launch in Brazil. It began offering the service in Brazil at the end of last year via Mercado Pago and now has more than one million clients. (CoinTelegraph Brasil)
The Motley Food lays out the case for why Brazil will catalyze the next crypto bull run. The rationale is straight-forward: Brazil’s population of 215 million that is well-versed in financial technology, a well-developed crypto infrastructure (which now includes tradfi banks and fintechs) and Rio de Janeiro’s bullish views on Web3.
Bitso is partnering with Fernando Ulrich to give bitcoin education opportunities to customers. (CoinTelegraph Brasil)
Brazil currently has 22 cryptocurrency ATMs, according the website Coin ATM Radar (Portal do Bitcoin).
BNDES, the national development bank, will invest R$30m into a digital economy job and skills training program for low-income and socially vulnerable people. The program will likely encompass blockchain and other emerging technologies. (Livecoins)
The TSE, Brazil’s election authority, has banned the use of bitcoin and cryptocurrencies for campaign donations in the 2022 elections. (CoinTelegraph Brasil)
Stonoex, the Brazilian commodity tokenization startup, was accepted into BTG Pactual’s boostLAB program, which is an accelerator that has graduated 78 companies since it launched in 2018. (CoinTelegraph Brasil)
The AfroBit_lab project, which will bring bitcoin and financial education to black communities in Rio de Janeiro, Sao Paulo and Salvador, kicked off last week. The program is being administered by Paxful and Instituto Guetto. (Money Times)
The city of Indiaroba in Sergipe is launching its own local cryptocurrency designed to encourage local consumption. The currency is called “Aratu”, a typical dish in the region, and will only be available for use in the city of Indiaroba. (Livecoins)
🎮 NFTs, Gaming and Metaverse
A group of Brazilian women executives, entrepreneurs and artists is creating a DAO called Eve devoted to investing in NFTs, cryptocurrencies, metaverse and Web3. The objective is to encourage more female participation in crypto. Among the group’s founding members are artist Livia Elektra, Ana Laura Magalhães - a former partner at XP, Hashdex partner Roberta Antunes and Cíntia Ferreira and Simone Sancho - co-founders of the Belong.Be beauty product platform. (Valor)
Formula 1 is rolling out 5,050 generative NFTs for the São Paulo Grand Prix to commemorate 50 years in Brazil. The initial sale will begin September 6 and will be sold at a price of R$360 per unit. Alan Adler, CEO of São Paulo GP, commented:
“The NFT is something exclusive and permanent, just like the history of F1 in Brazil. This connection is already enough to ensure the success of the launch.” (CriptoFacil)
Enthusiasm for football and games are behind Brazil’s emergence as the second-largest NFT market in the world, with more than 5 million people estimated to own at least one NFT. (CoinTelegraph Brasil)
Brazilian broadcaster SBT will feature an online exhibition and NFT auction to commemorate its 41 year anniversary. 280 NFTs commemorating moments in its history will be auctioned via a partnership with Origgio (formerly InspireIP) with initial bids of R$200. (CoinTelegraph Brasil) (Portal do bitcoin)
🏛 Public Policy, Regulation and Enforcement
A Portal do Bitcoin investigation revealed that a small mining town in Goiás served as the mysterious home base for two emerald mining shell companies that served as a front for two cryptocurrency pyramid schemes - G44 and Trust Investing. The collapse of G44 resulted in 30,000 Brazilians losing money and prompted more than 400 lawsuits.
CVM director Otto Lobo signaled a tougher stance against brokerages that try to circumvent rules or legislation in the Brazilian market. The remarks appear to be in reference to Binance making products that are supposed to be prohibited for Brazilian customers available to users who simply change the language from Brazilian Portuguese to Portugal Portuguese. He commented:
“There's been a lot of discussion that sometimes the site doesn't have a Brazil [version], but it has Portuguese from Portugal and it's being offered here.” (Portal do Bitcoin)
Ricardo Rodrigues Gomes, an ex-Pablo Escobar operative, was targeted in the next wave of Operation Kryptos. He is suspected of helping GAS Consultoria founder Glaidson Acacio dos Santos expand his illicit business out of Brazil and into the US, Portugal and elsewhere. The latest phase of the operation, known as Flyer One, served five arrest warrants, four search and seizure warrants and numerous searches in Cabo Frio, Rio de Janeiro and several cities in the US. (Money Times) (Portal do Bitcoin) (Valor Investe)
ABCripto, a trade group representing crypto brokers, and Blockchain Academy - the education arm of Mercado Bitcoin, will host a workshop about the Brazilian crypto economy for federal authorities from COAF, Receita Federal and the Public Ministry. (CoinTelegraph Brasil)
Federal Police launched a new operation called SINGULAR 2 aimed at dismantling criminal group engaged in cyber crime and use of cryptocurrencies. Damage caused by the group is estimated to be R$125m. 14 search and seizure warrants and 16 preventative arrest warrants are being carried out in São Paulo, Ceará, Minas Gerais and Mato Grosso do Sul. (Portal do Bitcoin)
Federal Police in Maranhão dismantled a gang accused of stealing US$1.5m from a US exchange via a cyber crime. “Operation Bit Tracking” executed nine search warrants and one preventative arrest in the city of Imperatriz. (CoinTelegraph Brasil)
Brazilian singer Simaria Mendes is suing Record TV for publicly sharing that her ex-husband had bought bitcoin. (Livecoins)
Telecomms operator Claro is being sued by a client claiming to have lost all of his bitcoins via sim swap hack. (Livecoins)
A candidate for Federal Deputy in Pará declared R$39m (US$7.6m) worth of cryptocurrency holdings. The individual last ran for office in 2012 when he declared just R$15,000 in total net worth. (Livecoins)
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