🇧🇷BCR #66: FTX Brazil Staff Resign, Push for Crypto Legislation Ramps up Amid Collapse
Plus: BRZ stablecoin breaks BRL peg; Gisele and Tom caught up in the mess
Well it’s been an interesting week. I hope everybody is holding up ok amid the FTX fallout. The situation is changing extremely quickly so we’re going to try to provide the most up to date rundown of how this situation impacts the Brazil market.
Please please please remember not your keys, not your coins! Keeping your crypto on any centralized exchange in the current market condition is extremely risky!
FTX Brazil and Latam Staff Resign, Left in the Dark
One of the shocking aspects of the FTX blowup was how employees were left completely in the dark about what was going on and were learning about the fate of their company, including the failed Binance takeover and the bankruptcy filing, in real time via Twitter along with the rest of us.
There are also many reports of FTX employees who received compensation in the form of FTX equity or FTT tokens that were custodied on the exchange, and others who even kept a majority of their personal funds and investments on the platform. They will likely never recuperate those investments after this week.
Antonio Neto, former head of FTX for Brazil and Latam, posted a note to clients in the FTX Portugues Telegram group Friday indicating that he and all other FTX employees in the region had resigned. He claims they were completely blindsided by the insolvency and the revelations that FTX was improperly loaning out customer deposits. This note came after he shut down FTX Brasil social media accounts.
Neto notes that he was reassured by FTX executives earlier in the week that the exchange was solvent and that all assets were available, but then resigned on Friday after the bankruptcy revelations came to light. He also claims his personal savings and investments remain stuck on the exchange:
I am extremely shocked and trying to process all of this. Sam built an image and vision that we all believed in: providing access and education so people can financially empower themselves and move the industry towards adoption. I've been in crypto since 2013, when I joined FTX in 2020 it was because I believed in the vision that was being built and how much it aligned with the crypto ethos. And this result was definitely not what we worked for. All my personal funds and investments also got stuck in FTX, these are hard losses to swallow. But the hardest thing is the frustration of having believed in something and shared it with family and friends who were also taken by surprise. And for that, I apologize, that's not what we've been working on all this time!
Push Renews for Brazil Crypto Legislation
The most immediate impact of the FTX collapse on the Brazilian market is that it provides urgency to push crypto legislation through the Chamber of Deputies this year. Indeed, Deputy Aureo Ribeiro told CoinTelegraph Brasil at Rio Innovation Week that pending legislation will pass the within 15 days.
“We have the commitment of the president of the Camara [Arthur Lira] to vote on this legislation within the next 15 days…This way, this year, we will have legislation that provides legal and economic security, so that we can attract more investments and move values safely.”
November 22 is the most likely date for the vote, according to Ribeiro. Ribeiro was the original rapporteur of the legislation that passed the Chamber of Deputies in December 2021. The bill then went to the Senate where it was approved with modifications and then returned to the Chamber where it ran out of momentum over the summer as election season approached.
Ribeiro’s comments come on top of a letter sent on November 9, by Febraban and ABCripto - trade groups that represent the banking and crypto industries, respectively - to Chamber Speaker Arthur Lira urging that bill 4401/2021 be voted on quickly.
New revelations that FTX was improperly using user funds will make the case for asset segregation significantly stronger. This provision was included, with much controversy, in the version of the bill that passed the Senate but was stripped out in the Chamber of Deputies amid intensive lobbying. Now, it is back in the discussion. Vanessa Butalla, legal director at 2TM Group, told CoinTelegraph Brasil:
“Ideally it [the PL] should be approved with the asset segregation rule, yes, because if this existed in the regulation, probably cases like the ones we saw this week, between FTX and Binance, would be avoided.”
Ribeiro, however, argued that he will push for the asset segregation clause to be excluded from the Chamber version:
“I believe that we are going to overturn this amendment that includes segregation. Banks do not segregate equity, why should there be segregation of an asset that grows, that advances, that is a new way of seeing the world? We cannot freeze this asset.”
There are still doubts among industry stakeholders whether the bill can realistically pass this year as Congress goes into recess on December 22. The legislation isn’t being met with major opposition at this stage; rather, the question has been one of prioritization and getting the project to the top of the agenda. As new revelations emerge from the FTX collapse this task should become much easier.
2TM’s Butalla told Valor that not passing the project this year would be a “step backwards”.
“We have a complicated calendar with the post-elections and the World Cup coming up, but the project is ready to be approved and if we miss the opportunity now, until the change of government and the change of legislature comes, we are opening space for a few months until we get it go ahead with it again. In such a dynamic market, these months mean years of delay.”
FTX Fallout Felt Across Brazil
Several Brazilian asset managers and funds reportedly had direct exposure to FTX or FTT, its exchange token whose decline in price set off the cascade. Giant Steps and Titanium Asset were among those, per filings with the CVM examined by crypto sleuths on Twitter. However, these reports are not up to date so it’s unclear if the entities were still holding those positions as of last week.
Asset manager BLP Crypto disclosed in a note to clients (obtained by Portal do Bitcoin) that it had 2.1 percent of its Genesis Block fund exposed to FTT tokens, but it sold this position before the crash on November 6 when negative rumors began circulating:
“We were uncomfortable with the FTT position, we immediately took out 2/3 of our position which was in cold custody on Coinbase Prime and transferred it to Binance, we sold the assets on Monday as soon as they were available and the price was around USD 22 .50 and the other third we sell later.”
Asset manager Hashdex stated that it had no exposure to FTX or Alameda Research, though one of its ETF products had an allocation in Solana, the price of which has declined significantly over the last week. Pedro Lapenta, head of research at Hashdex, said in a conference with investors:
“We have a very strict process for choosing custodians, we do not have any in-house products, passively or actively managed, with exposure to the FTX token, the FTT. We also do not negotiate with FTX, nor do we make any transactions with Alameda Research.”
BRZ Breaks Peg to Real
Transfero, the Switzerland-based issuer of the BRZ stablecoin with ties to FTX (received a R$40m (US$7.5m) investment in late 2020), has assured that the asset remains healthy despite FTX’s’s collapse and BRZ breaking its peg with the BRL twice in the last week. CEO Thiago Cesar told Livecoins:
“FTX is a Transfero customer. We process PIX payments to FTX, but we don't have actual exposure to that company. It is also clear that FTX is a shareholder of Transfero, this is a known fact in the market.
While BRZ is traded on multiple exchanges, FTX was one of the most liquid markets for the asset. Crypto.com, which is now also rumored to be experiencing a bank run and bordering on insolvency, was another large liquid market for the world’s largest non-dollar stablecoin.
While BRZ rebounded after initially breaking its peg on November 10 when FTX froze withdrawals, it crashed again this morning (Nov 14) presumably on the Crypto.com rumors. For its part, Crypto.com has sought to reassure customers that it has the necessary assets on the books to process withdrawals.
Cesar posted a Twitter thread on November 12 seeking to clarify the relationship between Transfero/BRZ and FTX and the mechanics of how the BRZ peg is maintained.
Cesar told InfoMoney earlier in the week that he was in discussions with FTX to retrieve the BRZ held by the exchange, and that the crisis doesn’t affect the company’s core business.
“For Transfero, nothing changes, FTX is one of the many clients we have. Transfero is not dependent on FTX, so much so that we work with ByBit, Bitget, Phemex, Crypto.com and other players. Transfero’s operations are independent and go far beyond crypto exchanges.”
BRZ is the world’s largest non-dollar stablecoin with a market value of US$188 million and was a popular trading instrument on FTX. It is also one of the most acquired cryptocurrencies in Brazil, with brokers declaring R$1.5bn (US$282m) worth of operations during the third quarter (trailing only bitcoin, ethereum and USDC).
Some other nuggets of FTX-related fallout in Brazil
FTX had signed on to be a sponsor of the São Paulo Grand Prix. This deal has been terminated
At LaBitConf in Argentina, Ripio CEO Sebastian Serrano said the FTX collapse opens the doors for smaller exchanges to attract customers and gain market share. (Exame)
Numerous attorneys are looking into what types of recourse might be available to Brazilian customers.
Bitso CEO Daniel Vogel said that the next few weeks will be “very difficult” as contagion spreads and other companies in the industry face financial stress. In an interview with Exame, he stressed that Bitso had no direct or indirect exposure to FTX and that the exchange is recovering some of the investments behind its Bitso+ program that offers monthly income to users.
Rough Year for Gisele
One of the biggest losers in the FTX affair is Brazilian supermodel Gisele Bündchen. Gisele and her ex-husband Tom Brady took a large equity position in FTX and became public faces of the entity, representing FTX around the world at events and advertisements. There are lots of numbers floating around speculating about how much the collapse will impact their net worth (estimated at US$650m) but it’s unclear exactly what portion of that is tied up in FTX. I’m sure we’ll find out soon enough in the bankruptcy proceedings.
Clearly Gisele and Tom aren’t financial people and had no idea what they were getting themselves into, but the situation serves as a great example of why it’s important to be extremely careful about these types of associations when you’re dabbling in crypto for the first time. She will surely regret the below tweet for a long time
In his first public address specific to cryptocurrencies since taking over the CVM, Brazil’s securities regulator, this summer, João Pedro Nascimento emphasized that his agency is pro crypto. Unlike other securities regulators around the world, he said his objective is to help the development of crypto and not creating rules that strangle the market and impede its growth.
Speaking at the Criptorama conference hosted by ABCripto, Nascimento stated;
“The CVM is open to innovation. CVM welcomes new ideas. CVM is a house that honors new technology. We understand that whenever a new technology is brought into the world, it must be conceived as a way to broaden the horizons with which rights can be exercised, and never as a way to restrict rights.”
In his talk, he said that he subscribes to the “blockchain, not bitcoin” narrative which asserts that cryptocurrencies themselves are less transformational than blockchains and distributed ledger technology:
“Cryptoassets themselves are not that inventive, they are not that big of a novelty. The new thing is blockchain technology. This is indeed a gigantic innovation that admits millions of applications, including in the capital market. For now, the technology has only revealed a tiny tip of all that it has in terms of usability and applications.”
Have a great week everyone,
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🗞Brazil Crypto News Rundown
Brazil is a key market in Mastercard’s crypto strategy, the payments firm’s VP of financial services Jonathan Anastasia told Bloomberg Linea. The country is one of the first to be integrated into Mastercard’s new Crypto Source program that will provide easy onramps for banks and large financial institutions to begin offering crypto assets to their customers.
The “Lula Effect”, the heightened flow of dollars entering the Brazilian market, could make the price of bitcoin more favorable in BRL terms. This is because there is a lack of institutional market makers in the Brazil market. It’s therefore easier to buy dollars through a bank and then use the dollars to buy bitcoin on a more liquid international exchange. This dynamic sets up an arbitrage opportunity between the dollar, real and bitcoin, PagCripto CEO Carlos Lain told CoinTelegraph Brasil. Vinicius Bazan, crypto asset analyst at Empiricus, told Valor Investe:
“There was a fear regarding Lula, but the international press likes him and there were positive messages about the election in international vehicles. If the Lula effect brings the dollar down, it has the reflection of bitcoin in reais falling too, that is, bitcoin can maintain its value in dollars, but in reais, the price drops.”
Itaú launched its first bitcoin ETF investment fund called the IT Now Bloomberg Galaxy Bitcoin ETF (BITI11) on the B3 exchange. The fund is in partnership with Galaxy Digital, a publicly traded US firm that was revealed to have $76.8 million in exposure to FTX. (Portal do Bitcoin) (InfoMoney) (Valor)
Banco do Brasil announced a strategic investment in Bitfy, a Brazilian crypto startup focusing on bitcoin custody - among other areas. The contribution, of undisclosed amount, was made through BB Impacto ASG, which is the bank’s corporate venture capital arm. The move was announced by BB president Fausto Ribeiro. (CoinTelegraph Brasil) (Valor)
Parfin and Bitfy announced a new partnership with DINAMO Networks to use the company’s multiparty computing hardware for its institutional crypto escrow solution. Brazil’s Central Bank also uses DINAMO’s hardware to provide security for PIX transactions. Parfin CEO Marcos Viriato explained:
“Parfin is providing the highest level of custody security for its customers…We are pleased to be participating in this pioneering solution with a high level of security and institutional compliance, which is now on the market.” (Valor)
PicPay announced the listing of two new cryptocurrencies - Uniswap and Chainlink, on its platform and hinted that it will issue its own BRL-paired stablecoin in coming months. (CoinTelegraph Brasil) (Valor)
Bankly, Méliuz’s crypto arm, saw cryptocurrency transaction volume decline by nearly R$3 billion (US$560 million) in the third quarter from R$8.3 billion in the first quarter to R$5.4 billion in the third. Méliuz is now considering spinning off Bankly (formerly known as Accesso Bank) after acquiring it last year for R$324 million (US$60.8 million). (CoinTelegraph Brasil)
Brazilian bitcoin miner Arthur Mining is holding up despite the stressful market and other major miners facing insolvency. (CoinTelegraph Brasil)
More than 14,000 Brazilian companies reported cryptocurrency trades in September to the Receita Federal, the most ever for a single month. However, the true number may be greater since the number does not include investment funds and ETFs. (CoinTelegraph Brasil)
Brazil’s cryptocurrency industry paid R$314 million (US$59 million) in taxes in 2021 to the Brazilian government, according to a study by LCA Consultores presented at Criptorama. (Portal do Bitcoin)
Grêmio, the Brazilian football club, launched its $IMORTAL Fan Pass in partnership with Mynt, BTG Pactual’s crypto exchange. The Fan Pass is pitched as an evolution of the fan token concept that will offer an app and advanced features and experiences. (Exame)
The São Paulo School of Economics of Fundação Getulio Vargas (FGV) held its third Cryptocurrency Data Challenge - a hackathon aimed at undergraduate students from throughout Brazil interested in crypto. Ripple was the primary sponsors of the event. (Valor Investe) (Portal do Bitcoin) (Valor Investe)
Binance is partnering with Rádio Mix FM to launch a new podcast called CriptoMix featuring musician Conrado Grandino and TV personality Bruna Allemann. (CoinTimes)
ABCripto announced a new partnership designed to bring financial and crypto education in the state of Amazonas. (CoinTelegraph Brasil)
Foxbit will launch its Foxbit Music Token that pays the holder music royalties for the next 48 months on songs performed by Brazilian artists. (CoinTelegraph Brasil)
More than 80 percent of the Brazilian crypto market believes a government entity should oversee crypto brokerages in Brazil. The survey was conducted by Mercado Bitcoin and FSB Pesquisa and surveyed 180 individuals across the industry. (Portal do Bitcoin) (Exame)
Estadao ran a good article explaining the possibilities of tokenized assets and how they will impact everyday investors.
65% of Brazilian investors consider the opinions of influencers like Primo Rico, Nathalia Arcuri and Bruno Perini before making investment decisions (CriptoFacil)
While much of the blockchain world is currently focused on Layer 2 scalability solutions, Latin American crypto entrepreneurs are much more focused on areas like banking the unbanked and launching new financial products for the masses, Fuse Capital’s Jose Bernardes reports back from Devcon in an op-ed in Exame.
Vinteum, the non-profit Brazilian group focused on bitcoin development, announced a new fellow for its grants program. The group will support Davidson Souza’s contributions to the Utreexo project. (CoinTimes)
Ledger Live launched its Portuguese language update for the Brazilian market. (Crypto Times)
Mercado Bitcoin is offering a token in partnership with Bodytech Company, one of the country’s largest fitness centers, that will give holders preferential gym access and other experiences. The token comes as part of MB’s push into the so-called “utility token” market. It can be purchased for a period of five or ten years, with the pre-sale value of the former checking in at R$32,500 and the second at R$50,000. (Portal do Bitcoin)
Grupo Brasil Mata Viva recently launched its “MundiToken” that allows companies and individuals to track their carbon footprint and assist with preservation efforts in rural Brazil. (InfoMoney)
A project that would allow crypto purchases via Pix without an intermediary was chosen as a finalist in the Banco Central’s LIFT Lab competition. (Portal do Bitcoin)
🎮 NFTs, Gaming and Metaverse
Brazilian footballer Richarlison launched a new NFT to commemorate his promotion to Brazil’s World Cup squad. (BeinCrypto)
Metaverse UPLAND announced a new NFT partnership with FIFA to be revealed during Campus Party Brasil. (CoinTelegraph Brasil)
Brazilian teenager Gean Guilherme is creating NFTs on Instagram to raise funds and generate social impact in the Morro Santo Amaro favela. (Exame)
Mastercard will host a Latin American music festival in the Decentraland metaverse. (CoinTelegraph Brasil)
Anheuser-Bush InBev debuted an NFT game called CryptoTitans. (Crypto Times)
Rough Diamonds launched its first drop of NFTs representing promising Brazilian footballers, including Endrick Felipe from Palmeiras and Matheus França of Flamengo. (Crypto Times)
🏛 Public Policy, Regulation and Enforcement
A São Paulo judge has ordered B Fintech, the local entity opened by Binance earlier this year, to pay R$65,000 to a customer who had an account hacked and funds stolen. B Fintech argued that it should not be a party to the lawsuit because it does not have responsibility for Binance’s actions nor can it legally answer for actions taken by the exchange. (Portal do Bitcoin)
The CVM’s Financial Innovation Laboratory has for the last few months been dedicated to studying ways of integrated blockchain tech into Brazil’s traditional financial system. These integrations include digital identity, tokenizing corporate debt and securities. (Exame)
FAS Advogados will host a webinar on its YouTube channel called “The CVM's Vision on Cryptoassets” on November 16
The Public Ministry and Civil Police across four states issued six temporary arrest orders for gang members accused of kidnapping and forcing victims to transfer R$2 million in bitcoin. (Crypto Times)
Liqi’s Daniel Coquieri argues that the CVM’s position on tokenization and crypto assets is positive and heading in the right direction, in a Portal do Bitcoin op-ed
Federal Police carried out search and seizure warrants in Tocantins against suspects accused of carrying out a R$15 million investment scam involving cryptocurrencies. (Portal do Bitcoin)
A Senate bill that calls bitcoin a villain of the environment is expected to advance at the committee level. (Livecoins)
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