Brazil, the largest country in Latin America, is approaching regulating cryptocurrencies with its own legal version of Bitcoin.
Large companies hope that the framework will make Brazil the forefront in the region, attracting capital and clients abroad.
On April 26, the Brazilian Senate passed the country’s first bill regulating cryptocurrencies. This project defines what a virtual asset is and sets the stage for a broader regulatory circumference. This will also provide basic rules for everyday use and stricter penalties for fraud and deception, which have increased significantly over the past few years in unregulated spaces.
Virtual assets are a broader category that includes cryptocurrencies like Bitcoin and other digital assets, such as tokens. The bill would also allow the executive branch to create a new body to oversee crypto, delegate oversight to the central bank or the current financial market regulator, CVM.
The approval of the bill was welcomed by the country’s leading player, Mercado Bitcoin.
“Virtual asset regulation is important and vital,” Julien Dutra, director of government affairs at the company, told LendIt Fintech. “It can ensure a healthy market, with security for entrepreneurs and protection for consumers.”
Record capital flows
The decision to create a foundation for the nascent industry came because the company pulled a record capital flow last year: venture funding for Latin American crypto companies increased tenfold in 2021 to $ 650 million from $ 68 million. Although it still represents a small portion of the larger fintech investment, crypto is quickly gaining weight.
With by far the largest recipient of venture capital funds, Brazil is also home to the first cryptocurrency unicorn company in Latin America.
The Bitcoin market exceeded its $ 1 billion value threshold last year when it raised $ 250 million from a series of investor rounds that had Softbank as a major investor. The Japanese conglomerate, which manages two important venture capital funds in Latin America, has invested about $ 200 million in the company.
Mercado Bitcoin is a major regional crypto exchange that saw business grow 530% last year to trade about 40 billion reais in crypto over the previous year.
Regulators scramble to find out
The decision from the Brazilian legislature came as countries around the world struggle to figure out the best way to tackle a fast-growing industry. While many experts believe that regulation can contribute more investors and client certainty because it will eliminate fraudsters from legitimate businesses. Some argue that a framework done in a hurry and with little interaction can do more harm than good.
“In some countries, attempts to enforce regulations end up directly damaging the operations of many companies,” said Manuel Beaudroit, CEO at Belo. It is important, he said, that crypto companies can effectively navigate through these regulations.
To prevent fraud, law projects in Brazil demand that the crypto sector monitor clients (KYC, to “know your clients”) and transactions (KYT, to “know your transactions”) as standard financial crime procedures faced by banks.
Dutra stressed that such controls could be “essential” to prevent fraud if extended to all sectors.
“Brazil has implemented best market practices with independent regulation,” he said.
“The (new) regulations do not limit technology but aim to strengthen best practices and update traditional financial system legislation and criminal codes so that there is a policy against illegal activities using digital assets,” he said.
There is no date to vote
The framework for developing the industry is due to cryptocurrencies rapidly entering the mainstream in Latin America. Chainalysis, an intelligence company, estimates that the use of cryptocurrency on LatAm increased 880% from June 2020 to June 2021. According to Ventara, the research firm, salaries and payments made through cryptocurrency increased 10% monthly.
To become law, a bill approved in the Senate now must be ratified by the Lower House in Congress, only then submitted for signature by President Jair Bolsonaro.
There is no exact date for the voting session so far. But the largest cryptocurrency company in Brazil is desperate for that to happen.
“If done well, the regulation goes far from the limits,” Mercado Bitcoin’s Dutra said. “This attracts investors, stimulates innovation, and strengthens Brazil’s position in the new digital economy.”
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