🇧🇷BCR Weekly Recap #33: We Don't Talk About Crypto Regulation
Well, perhaps we will today because an important crypto regulation bill has advanced in the Brazilian Senate
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 English-speaking audience.
👋 bd everyone,
I hope you are all are doing well and staying safe in these times. Warm welcome to 🇧🇷Brazil Crypto Report for the week of February 21-25, 2022!
Heads up that this is going to be a long newsletter because we’ve got a lot going on right now. I did my best to cover everything in a thoughtful and comprehensive manner, though apologies in advance if I missed some nuance.
🏠Housekeeping note: BCR is going to be off next week as I’ll be on a trekking trip in the Himalayas with no internet connectivity. Sadly, this means I won’t be able to make it to ETH Rio where I would have enjoyed meeting readers IRL. Looks like it’s going to be an awesome event as we’re in a bull market for crypto events right now (ETH Denver attendees can attest). Nevertheless, I’m excited by the opportunity to unplug from everything and live out of a backpack for a week. I’ll send out a double issue of BCR upon return to highlight the first two weeks of March.
🎙Also, we also launched our inaugural 🇧🇷BCR Podcast this past week with Antonio Neto, who heads up Latam and Brazil for FTX, as our first guest discussing FTX in Brazil and his views on the current ecosystem. The (idealistic) goal here is to release one of these episodes per week moving ahead. If you’re a builder, entrepreneur, operator, investor, etc. doing something cool in the Brazil crypto space, I’d love to have you on as a guest. Feel free to reply to this or shoot me a note at firstname.lastname@example.org
🏛The big news item this past week was the Senate Committee on Economic Affairs approving a bill that would regulate cryptocurrency operators in Brazil.
The legislation, known as Bill 3.825/2019 and authored by Senator Flávio Arns and packaged together by Senator Irajá Abreu, is quite similar to legislation passed by the Chamber of Deputies last December and generally in-line with legislation that has been proposed by the Financial Action Task Force and implemented in other, more mature crypto jurisdictions.
In other words, this is a pretty big deal as it appears the bill has a very feasible path to being approved and signed into law. Here are the top-level highlights:
The bill would require crypto businesses to obtain a license from the federal government before commencing operations in Brazil; unlicensed entities would be considered illegal
Domestic exchanges are keen to use this provision as leverage against Binance, which is currently by far the largest exchange by trading volume in the country but operates “irregularly” in the country because it has no formal base of operation
Some say this would have the opposite of the intended effect. “On the one hand, the law discourages investors from being clients of Brazilian exchanges, as they will be required to provide information to the authorities,” Isac Costa, a professor at Ibmec and Insper and a partner at Warde Advogados, told InfoMoney.
Costa further points out that unregistered exchanges might just continue to operate: “The inaction of Brazilian authorities is surprising, so there is no reason to expect that foreign exchanges will face any resistance from the Public Power, which creates a relevant distortion that harms Brazilian exchanges.”
Crypto businesses, referred to as “virtual asset service providers” in the bill, would be required to report suspicious transactions to COAF - the Financial Activities Control Council. Companies that redeem, exchange, transfer, custody or facilitate the issuance or sale of virtual assets would meet this definition.
The text further defines “virtual asset” as a digital representation of value that can be traded or transferred electronically and used for making payment or investments.
The CVM, Brazil’s securities regulator would be relinquished of crypto supervision duties; instead, the Executive Branch would be given authority to designate an entity of its choosing (most likely the Banco Central or Receita Federal) to regulate the sector.
This regulatory body would be tasked with creating anti-money laundering rules and safeguards in-line with international standards.
This body would have discretion to decide if licensed companies must operate exclusively in the virtual asset space or not
The CVM would still be the authority in the case of companies raising funds via coin offerings.
Financial crimes involving virtual assets would be punishable by 4-8 years imprisonment and a financial penalty
Purchases and imports of crypto mining and staking hardware would be tax exempt until 2029, provided that the purchasing entity is 100% carbon neutral
Next steps: because the project is final, the bill needs to be sent to the Chamber of Deputies where it will need to receive full plenary vote. It would then come into effect 180 days after being signed into law by President Jair Bolsonaro.
Senator Flávio Bolsonaro, the president’s son, voiced his support for the bill. This is a good indication that it would ultimately be supported by the president.
Senator Irajá Abreu, rapporteur for the bill, has been meeting with Deputy Aureo Ribeiro - sponsor of the bill that passed the Chamber of Deputies last December - to work on a reconciled and consolidated text that could be potentially voted on and approved quickly. However, any proposed changes to the approved text would gum up that process. Abreu commented:
“In a very short period of time, we will be able to move forward with these proposals in the Chamber and in the Senate.”
Banco Central president Roberto Campos Neto and the CVM actively participated in crafting the final text of the Senate bill, Senator Irajá said.
The legislative process is a sausage-making process that will always produce imperfect results.
Some critics are arguing that the expanded rules and reporting requirements will be unfairly punitive toward retail investors who will have more of their personal financial information hoovered up by the government
Per Costa’s remarks above, the bill wouldn’t be able to fully prevent investors from using centralized or decentralized crypto trading platforms that do not have an official presence or headquarters in Brazil. In fact, it would likely incentivize a certain segment of users to seek out these platforms so as to avoid handing over personal data to the government.
Nor would the bill prevent investors from buying crypto on an approved platform and then transferring them to a self-hosted wallet. Thus, the bill legislation might not be able to fulfill its stated purpose of preventing money laundering and financial crimes using crypto.
Many in the crypto community hold concerns that the bill lacks clarity regarding certain types of operations and opens the door to excessive regulation and bureaucracy that will make operating more costly for entrepreneurs, strangle the industry and weaken the national market.
Some reaction from industry stakeholders:
Julien Dutra, Director of Government Relations at 2TM Group:
"We endorse the initiative of the Legislative Power. The regulation can guarantee a healthy market, with security for entrepreneurs and protection for consumers. and requiring the crypto sector to supervise clients (KYC, for "know your client") and transactions (KYT, for "know your transactions"), which are part of the financial crime prevention manuals. practice and whose expansion to the entire sector is essential to curb fraud."
Rodrigo Monteiro, executive director of ABCripto:
“The approved text…did not evolve to the definition of a specific regulatory agent, leaving the decision to the discretion of the Executive Branch…we believe that prior legislative attribution, with the definition of the Central Bank as the primary regulator, would be more effective and adequate.”
Andre Portilho, head of digital assets at BTG Pactual:
“The advancement of the crypto bill in Congress is a big step for the Brazilian market. Crypto is a new technology and also an asset class…It is essential that we have a clear regulatory framework that allows for the expansion of this market and the positioning of Brazil as a crypto hub in Latin America.”
Julietta Brambila, head of cryptocurrency compliance at Méliuz:
“The PL has a more immediate tone, aiming to stop problems related to financial illicit and is a kick-off for governance…“I see it as a process that requires careful execution so as not to be an anti-competitive instrument. Excessive and dysfunctional regulatory scrutiny of activities can act as a disincentive and sensitize the market.”
📜 ICYMI CoinTelegraph Brasil also released its Top 10 People in the Brazil crypto space for 2022, which I’ll summarize quickly here:
Reinaldo Rabelo, Mercado Bitcoin
Marcelo Sampaio, Hashdex
Daniel Coquieri, Liqi
Robert Campos Neto, Banco Central
Fernando Ulrich, Liberta Investimentos
Primo Rico, YouTube influencer
Fernando Carvalho, QR Capital
Thiago César, Transfero Swiss
Edilson Osório, OriginalMy
Luis Adaime, MOSS
This stacks up quite similarly to the Top 10 Most Influential list BCR released in January, so feel free to revisit that if you’d like to compare. TLDR is there’s a broad array of talent entering this ecosystem right now.
🪙 The Digital Real pilot project will go live in the second half of 2022, Banco Central president Roberto Campos Neto said at an event promoted by BTG Pactual:
“We will have the digital currency pilot in the second half of 2022. We are very close to announcing it.”
Campos Neto also said that he’s been studying up on the metaverse, defended the value that crypto assets and platforms offer to the financial system, applauded the passage of the crypto bill in the Senate committee and even mentioned that cryptocurrencies took up more than 50% of the agenda during his most recent meeting with other central bankers. (Valor Investe) (Exame) (Estadao)
“I see a certain concern, a certain apprehension. But I also see new doors opening for financial innovation, for a decentralized system that is capable of generating financial inclusion”
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💣 Trending Cryptos in Brazil
The most popular cryptos in Brazil as of February 25 are Bomber Coin, Smooth Love Potion and BNB, per data provider CoinGecko.
👩💻Brazil Crypto Hiring Spotlight
Visa has two new job openings in its crypto division relevant to Brazil that twill be responsible for delivering crypto solutions to Visa partners in the region such as fintechs, banks, merchants and crypto businesses
Gustavo Paro has transitioned to become Brazil Country Manager and Latam Sales Head at R3, the enterprise DLT consortium
The latest in its series of Brazilians who are working in crypto abroad, Portal do Bitcoin ran a profile on David Lawant, who is from São Paulo and now head of research at Bitwise, one of the largest crypto asset managers in the US and the world.
🗞Brazil Crypto News Rundown 🗞
Brazilian exchange Foxbit raised US$21m (R$108m) in a Series A funding round led by Ok Group, the parent company of OKCoin and OKX.
The funds will be used to develop new technologies and integrate new blockchain networks, lower fees, fund potential acquisitions and to expand the company’s product and technology teams.
CEO João Canhada said that the exchange, which has roughly 950,000 customers - per its website, is exploring conversations for another funding round in the near future.
In addition to a spot exchange, Foxbit has an OTC desk, Foxbit Invest, that trades more than US$20m (R$103m) per day; a crypto payment platform called Foxbit Pay, its Foxbit Tokens asset tokenization platform and a crypto-as-a-service product Compra Fácil Cripto.
igc Partners and Pinheiro Neto Advogados advised Foxbit on the raise
OK Group said in a statement:
“Foxbit is an excellent crypto asset company and consolidated throughout the LATAM market, especially in Brazil. It has built a strong user base with an outstanding reputation and we are keen to support the continued development of new Foxbit products and improvements to the trading experience for users in Latin America.” (CoinDesk) (The Block) (Valor Investe) (Exame) (Estadao)
Nubank reported 54 million customers - up 62% year-over-year - and reduced its losses by 38% in the fourth quarter of 2021. (CoinTelegraph Brasil)
Crypto asset manager Hashdex is opening up its multimarket funds to retail investors, not just accredited or professional investors.
Individual investors will be able to invest in Hashdex 40 Nasdaq Crypto Index funds (that allocate 40% to crypto and 60% to fixed income) and Hashdex 100 Nasdaq Crypto (100% crypto).
Previously, the Hashdex 20 Nasdaq Crypto Index - which invests 20% in crypto and 80% in fixed income - was its only multimarket fund available to retail.
The Ouro Bitcoin Risk Parity, which invests 50/50 in gold and bitcoin, is Hashdex’s only fund still open exclusively to accredited investors
Binance has made 12 new cryptocurrencies available for Brazilians to purchase by credit card and Visa and Mastercard debit cards. Among these include Anchor Protocol (ANC), Acala (ACA), Illuvium (ILV) and Quantstamp (QSP). (Portal do Bitcoin) (CoinTelegraph Brasil)
Valor Investe ran a story about Digitra.com, the new crypto platform founded by ex-Mercado Bitcoin president Rodrigo Batasta that is aimed toward high-net worth clients and institutions.
Brazilian bitcoin holders are being adversely impacted by the US dollar’s weakening against the Brazilian real over the last two months. (Livecoins)
Coinbase is teaming up with payments firm Deel to launch a crypto payroll solution for companies in Brazil and elsewhere in the world. Deel, an international payment and contract management startup, allows employees to withdraw a portion of their salaries in cryptocurrencies and USDC. (CoinTelegraph Brasil)
Deel also released a global survey showing that freelance workers from Argentina, Nigeria and Brazil are most keen to take a portion of their salaries in crypto (Portal do Bitcoin)
Traditional Brazilian equity fund managers Velt, Squadra and Constellation expressed bullish, yet cautious, views toward crypto in talks at the CEO Conference. Florian Bartunek, founding partner of Constellation, said that cryptos are “spectacular business” and that “Customers are no longer patient enough to wait for the exchange to open. They want to buy assets 24/7.” (Valor Investe) (Exame)
Agribusiness giant Cibra announced the launch of CibraCoin, the first-ever crypto asset linked to the price of fertilizer. The coin will function similar to an option that allows for the purchase at a fixed price at a future date. It can be purchased and traded on the StonoEx.com asset tokenization platform. Cibra president Santiago Franco commented:
“Cibra is always looking for new and better ways to serve our customers throughout Brazil. And CibraCoin brings to the fertilizer market two things that are much sought after by producers: practicality and predictability of costs.” (CoinTelegraph Brasil)
Brazilian fintech a55 announced a new operation to use a DeFi protocol called Credix, built on the Solana blockchain, to raise funds using a hybrid debt model. a55 aggregates banking, billing and other types of data to provide credit to startups in Latin America. Thomas Bonner of Credix commented:
"Credix was very impressed with the a55 team and their vision to develop revenue-based financing. This DeFi loan is the beginning of a partnership and an exciting growth journey to revolutionize global credit markets." (CoinTelegraph Brasil)
Eletrobras, the massive Brazilian electrical utility, is taking steps to build its own blockchain - per a public notice calling for the creation of “databases of distributed records.” The notice comments:
“[The utility] been studying a more efficient way of handling the administration and governance of data distributed in a shared network. Analyzing the entire registry chain, it is understood that the Blockchain technology of a permissioned distributed registry database is the one that best meets the needs of the process “
André Esteves, founding partner at BTG Pactual, said that the US Federal Reserve may have caused bitcoin to rise in price due to its low interest rates and cheap money. (Livecoins)
Beincrypto published a nice profile on Transfero CSO Márlyson Siva
Bloomberg Linea examined the new partnerships between Binance and the Paulistao football tournament and Santos
Paulo Dantas, a Brazilian economist and vice president at the Federal Council of Economics, issued a warning to investors interested in purchasing cryptocurrencies, arguing that they are volatile and speculative in nature. (CriptoFacil)
Crypto payment platform Tribal Credit is partnering with Visa to offer credit and financing solutions for small and medium sized businesses in Latam, including Brazil. While its primary aim is traditional financing, Tribal allows companies to use crypto to receive and transfer funds. Last December, it created an international payment service for enterprise with Bitso and Stellar Development Foundation that uses Stellar’s USD stablecoin. (CoinTelegraph Brasil)
The city of Itajaí in Santa Catarina has begun distributing blockchain-based social tokens to its population with the goal of improving the environment, by compensating those who use bicycles, buses and walking for transportation. (Livecoins)
Pablo Spyer, economist and host of the Minuto Touro de Ouro program on YouTube, appears to have changed his outlook on bitcoin after posting in October 2019 that he “never have and never will buy bitcoin”. (Portal do Bitcoin)
🎮 NFTs, Gaming and Metaverse
MekaMiners, a Brazilian NFT game, lost nearly 100% of its value within 24 hours after launch when a hacker allegedly manipulated the game’s source code and drained its liquidity. The MekaMiners team blamed Solidity Finance, its smart contract auditor, for failing to catch the error that led to the exploit. (CoinTelegraph Brasil) (Livecoins)
56% of Brazilian gamers do not understand what NFTs are and 91% have never purchased one, according to a survey by streaming platform Nimo TV. Rodrigo Russano Dias, Head of PR and Social Media at Nimo TV, commented:
“It's something still on the rise in Brazil, that's a fact. But considering trends around the world, we see a huge potential for increasing access and interest in NFT games.” (CoinTelegraph Brasil)
CoinTelegraph Brasil published a helpful back and forth weighing the pros and cons of play-to-earn blockchain games in Brazil. On the one hand, they provide a new form of economic opportunity; on the other, they can require a lot of time (and luck) without much payout in the form of tangible new skills.
Igor Puga, CMO at Santander Brasil, wrote an op-ed criticizing the hype around NFTs, arguing that they are vulnerable to scams because the purchaser doesn’t know what they are truly buying. (Brazil Journal)
Estadão ran an article discussing the flurry of activity metaverse land investing
Concepts like the “metaverse” and “metacommerce” are still a long ways away for most Brazilians, Mercado Livre CEO Stelleo Tolda commented at an event, arguing that the metaverse will remain an “unknown land” for some time and thus limit commerce in virtual worlds. (CoinTelegraph Brasil)
Brazilian developers of an NFT game called Mafagafo hiked the price of its MAFA coin by 46% in order to prevent a panic sell related to the Russia-Ukraine conflict. (Portal do Bitcoin)
The city council of Bragança Paulista is promoting a course on NFTs and the metaverse for anyone interested on March 3. (Livecoins)
Mercado Bitcoin and Block4 are launching a collection of Dodge NFTs inspired by real life car models in the collection of Alexandre Badolato, one of the largest such collectors in the world. The NFTs are inspired by four models manufactured in Brazil between 1970 and 1974. The auction for the NFTs runs from Feb 24 to March 9, with minimum bids starting at R$1,000 (US$193). Mercado Bitcoin CEO Reinaldo Rabelo commented:
“In this auction, which is the second on our recently launched marketplace platform, we inaugurated the collectibles category. We see the possibility of investing in a market as promising as NFTs, but always with a curatorship of assets that make sense for the market and, mainly, for our customers.” (CoinTelegraph Brasil)
🏛 Public Policy and Enforcement
The Receita Federal will requires taxpayers to declare NFTs and stablecoins as income for 2022 as part of a new taxonomy that breaks out bitcoin, altcoins, stablecoins and security/utility tokens for reporting purposes. Brazilians who hold more than R$5k (US$967) in crypto are required to include crypto assets in their income declaration. (Portal do Bitcoin) (CoinTelegraph Brasil)
Civil Police in São Paulo have been asked to investigate MSK Invest, an alleged bitcoin pyramid scheme that has been the subject of more than 500 complaints after it allegedly ceased paying its investors. Procon-SP, São Paulo’s consumer protection agency, formally requested the investigation.
Deputy Aureo Ribeiro introduced a bill in the Chamber of Deputies calling for rules to govern the Digital Real, with the goal of bringing transparency, security and economic efficiency to the debate. He explained:
"Large references in the Brazilian economy have already expressed concerns about the lack of transparency and objectivity on the part of the Central Bank in relation to the issuance of digital currencies. national markets and the full development of the Brazilian economy." (CoinTelegraph Brasil) (Livecoins)
Lifetycon, an alleged bitcoin pyramid scheme that defaulted on hundreds of customers in the city of São Miguel do Oeste, is being investigated by Santa Catarina Procon, the state’s consumer protection agency. Lifetycon, which was run by a guitar instructor-turned-mega investor Eliade Costa, is estimated to have received R$100m (US$19m) by promising customers 5% returns per month. (Portal do Bitcoin)
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