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Brazil: Digital Asset Adoption and Regulatory Framework

Aug 25, 2021
Brazil digital assets

Cryptocurrency adoption indexes have been growing uninterruptedly for almost a decade now, with digital assets reaching peripheral countries the same way they did central Europe and USA at their inception. Having briefly introduced the state of digital asset adoption on the Latin American market, it is time to follow up with specific countries of the region. Firstly, we will look at Brazil, America’s second largest country by population.

Digital asset adoption in Brazil

The adoption of digital assets in Brazil has had a steep curve ever since its first exposure. Curiously enough, a 221-page Global Digital Report by Hootsuite and We Are Social reveals that Brazil – the fifth largest economy and sixth country in terms of population – is also placed as the fifth country in the world in terms of owners of cryptocurrency [1]. Regionally, Brazil accounts for the most cryptocurrency usage by on-chain volume of all Latin American countries – by far [2]. 

At a more granular level, the distribution of adoption is an interesting topic in itself. Electroneum, an instant payment blockchain-based app, found that while ~25% of Brazil’s population stands below the poverty line, 40% of crypto holders earn less than the minimum wage [3]. Furthermore, cryptocurrency adoption is growing both as an investment type and as a payment method in Brazil. A survey carried out by the Center for Governance of Change to over 1,000 Brazilians showed that over 10 percent of respondents utilize cryptocurrencies on a monthly-basis [4].  

Brazil crypto usage

Source: Current usage of money in Brazil [4]

Digital asset acceptance in Brazil

Digital asset acceptance has also been increasing in Brazilian marketplaces. It is reaching hundreds of businesses in several cities – potentially touching millions of lives. The latest mapping carried out by Statista in 2021 showed that over 40 million people could be exposed to businesses with cryptocurrency ATMs or in-store crypto payment methods:

Characteristics No. of crypto businesses Population (2020)
São Paulo 358 22.046.000
Rio de Janeiro 65 12.272.000
Porto Alegre 56 1.484.941
Belo Horizonte 37 5.159.000
Recife  37 1.555.039

Source: Top Businesses in the 5 biggest cities in Brazil that either have a cryptocurrency ATM or offer crypto as an in-store payment method as of March 9, 2021 [5] 

With the approval of Bitcoin’s ETFs by Brazil’s securities exchange commission, a number of crypto-indexed funds launched at the beginning of the year. Significantly, this has allowed investors the ability to include digital assets in their holdings in a similar manner as buying stocks. Mercado Bitcoin, the largest Bitcoin exchange in Brazil, has recently achieved unicorn status and processed a higher volume this year so far than the aggregate time period from 2013 to 2018 [6] [7]. 

The scene has even come to showcase an uncommon adoption cases. For instance, Burger King Brazil now accepts dogecoin as a payment method to purchase the fast-food chain’s Dogpper, their dog snack [8]. 

Digital asset regulatory framework in Brazil

Despite the impressive growth it’s had adoption-wise, regulation in Brazil has had a hard time keeping up, proving inconsistent. Several governmental and regulatory institutions also have differing conceptions on digital assets, creating a complex landscape for holders and traders [9]. 

Global Legal Insights produced a diligent first approach to the regulatory framework in Brazil [10]:

  1.  Government definition and attitude. While not specifically regulating the creation, use and trade of digital assets, Brazilian authorities don’t regard digital assets as legal tender. Several institutions -such as the Central Bank or the Brazilian equivalent of the US SEC- have made public their position of caution and stated the risks of holding cryptocurrency.
  2. Cryptocurrency regulation. Overlapping bills are currently being considered by the House of Representatives -Brazil’s legislative bench-, simultaneously aiming to: define and allow them, and prohibit regulatory bodies from creating rules that could ban or hinder the issuance, circulation and use of cryptocurrencies; or the activities of exchanges.
  3.  Sales regulation. As in every other country aiming to determine the nature of cryptocurrencies, digital assets in Brazil are undergoing tests regarding how they should be defined. Pending the definition, it may result in them being considered as securities and therefore required to register with the securities exchange commission (CMV).
  4.  Taxation. Digital assets are currently being considered as assets, so digital asset holders must declare them in their income tax returns, and pay the corresponding tax or capital gains obtained from selling them.
  5.  Ownership and listing requirements. At the present time, the only Circular Notice issued in 2018 bans the direct acquisition of cryptocurrencies by Brazilian investment funds as cryptocurrencies are not qualified as financial assets under current regulations. However, Brazilian investment funds are still able to make indirect investments in cryptocurrencies (via cryptocurrency-based derivatives or third party vehicles directly investing in cryptocurrencies or their derivatives and which are incorporated in jurisdictions where they are allowed to hold cryptocurrencies or their derivatives).
  6.  Mining. Mining cryptocurrencies is not prohibited, and has not been the subject matter of any specific observation by Brazilian authorities.
  7.  Reporting requirements. Reporting reaches both retail users and institutions (or legal persons). Therefore, retail users need to report digital assets holdings in their income tax returns as “other assets,” under federal tax authorities. Institutions – mainly digital asset exchanges – are also required to report a series of transactions, including purchases, sales, donations, issuances and any other transfers of cryptocurrencies.

Scaling to new territories

With the discovery of new use cases for cryptocurrencies and rising digital asset adoption rates in Brazil, new opportunities appear. The Brazilian case is an enticing one for those who see the potential digital assets have on a major world economy. But building this endeavour from the ground up can be a complicated journey, with a long list of tasks ahead. 

Scalable Solutions can provide a wide range of products and services in the space to make this journey easier – from building your exchange from scratch, auditing your project to ensure a secure release, to tokenizing real world assets. The Brazilian market is one ripe with opportunities for new and existing businesses and investors to scale. 

Get in touch with our team today to bring your project to life. 

 

 

 

References

[1] Inc., H. (2021). Digital 2021 – Social Media Marketing & Management Dashboard – Hootsuite. Retrieved 22 August 2021, from https://www.hootsuite.com/resources/digital-trends 

[2] Chainalysis (2020). The 2020 Geography of Cryptocurrency Report Analysis of Geographic Trends in Cryptocurrency Adoption, Usage, and Regulation. Available from https://go.chainalysis.com/rs/503-FAP-074/images/2020-Geography-of-Crypto.pdf.

[3] “Why Is Brazil, a Country of Contrasts, Where the Poorest Use Crypto the Most?” Electroneum Press Room, news.electroneum.com/brazil-a-huge-business-opportunity-where-crypto-is-on-the-rise-among-a-median-population-of-32

[4] CGC, Cryptocurrencies and the Future of Money. Madrid: Center for the Governance of Change, IE University, 2019

[5] Best, Raynor de. “Cities in Brazil That Accept Bitcoin 2021.” Statista, 29 Mar. 2021, www.statista.com/statistics/1224861/firms-with-crypto-payment-solution-brazil-city/

[6] Engler, Andres. Brazil Crypto Exchange Mercado Bitcoin RAISES $200M. CoinDesk, 9 July 2021, www.coindesk.com/softbank-invests-200m-in-brazil-crypto-exchange-mercado-bitcoin

[7] “Latin America’s Largest Crypto Exchange Eyes Global Expansion.” Investable Universe, 21 Jan. 2021, investableuniverse.com/2021/01/21/mercado-bitcoin-brazil-cryptocurrency-exchange/

[8] Engler, Andres. Burger King Brazil Will Accept Dogecoin for ‘DOGPPER’ Dog Food. CoinDesk, 27 July 2021, www.coindesk.com/burger-king-brazil-will-accept-dogecoin-for-dogpper-dog-food

[9] Handagama, Sandali. Crypto Is Booming in Brazil, but Regulations Lag Behind. CoinDesk, 7 May 2021, www.coindesk.com/crypto-is-booming-in-brazil-but-regulations-lag-behind

[10] Blockchain & Cryptocurrency Regulation 2020. Global Legal Insights, www.cgmlaw.com.br/wp-content/uploads/2019/11/GLIBLCH20_Brazil.pdf

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