BC President Speaks of Third Crypto Bill and Custody Concern

The president of the Central Bank (BC), Roberto Campos Neto, said today (31) that the institution likes the two bills to regulate cryptocurrency brokers, one in the Senate and the other in the Chamber of Deputies. But that there will be a third party “to improve” these projects. “In our PL, we will start to regulate brokers”. Thus, it will be possible to know, for example, if the exchanges have ballast for the sales of cryptocurrencies they make and it will be asked that foreign exchanges “preferably have their headquarters” in Brazil. This is because “some are international and we have difficulty reaching out as regulators”.

The statements took place during a hearing in the Chamber of Deputies with Campos Neto, in which the topic was inflation and interest rates. The BC is talking to Congress about regulation and earlier this year, Folha de S. Paulo reported that the bank would send regulatory proposals to Congress, which should happen through President Jair Bolsonaro. Bacen’s board, including the president, are meeting with presidents and directors of brokerage firms to discuss the regulation. This already includes Binance, Coinbase, Bitso and Bitcoin Market.

And to a representative of “a great brokerage”, Campos Neto said that he cited “a problem that afflicts us today”. That problem is the global concentration of custody. “Today, 80% of cryptocurrencies are held by four companies.” So if someone breaks the encryption of a large base, it can create an even bigger problem.

Campos Neto cites Terra and Luna cryptocurrencies

The third concern that the BC president cited is with cryptoassets linked by algorithms, in the case of the Terra-Luna duo, “which turned to zero in a few hours”. However, he cited another concern that the Central Bank is following up. According to him, crypto assets linked to illegal trade have appeared. This means that the person makes an international purchase at an under-invoiced value, closing the exchange at a lower value. And then sends the rest of the money in crypto.

The issue of custody is related to the option of many people who have cryptocurrency not to leave it in a digital wallet or a hard wallet, such as a flash drive. In Brazil, cryptocurrency is largely purchased from a broker, and a certificate of participation is received that represents this purchase. In the meantime, the code is thought to be with the brokerage, he said. The client imagines that the exchange has the backing to sell the stake in a crypto asset that it is in custody. But, this is not always the case, which leads to embezzlement with the money of these customers. It was then that Campos Neto cited “our PL” for the regulation of brokerage firms.

Campos Neto spoke again that blockchain and cryptoassets will bring gains to various industries and processes, such as automation and improvements in financial functions, for example in the back office of banks. “It is a system that is here to stay.” The president has already said that he would like the digital real, the BC’s digital currency, to be linked to blockchain. The first pilot project of the currency should be in 2023. It would be in the second semester, but with the strike of the bank’s servers, the schedule was delayed.