Cryptocurrency trading volume in Brazil is already equivalent to 50% of total B3 operations and alerts the Central Bank

Data consolidated by the Central Bank in December last year realize that the crypto asset market moved in Brazil around R$ 300 billion through centralized cryptocurrency exchanges, reported by Folha de São Paulo, published this Sunday, 29.

The amount is equivalent to the value moved by variable income investment products (shares, funds, BDRs and ETFs) traded on B3, which totaled around R$ 600 billion in the same period, according to data from Anbima (Brazilian Association of Financial and Capital Market Entities) gathered by the CB.

The BRL 300 billion moved by crypto assets is equivalent to 27% of the total deposited in savings accounts, the most popular type of investment among Brazilians.

Regulation on multiple fronts

The recent growth in the adoption of crypto-assets as an alternative for financial investment among Brazilians triggered the alert from the Central Bank and the Federal Revenue, as operations involving digital assets in Brazil have been carried out without a defined regulatory framework.

Meanwhile, in Congress, the Bill 4401/2021 was approved in the Senate and forwarded to the Chamber of Deputies to go through the final phase of approval. The president of the Chamber, Arthur Lira (PP-AL), sent the bill to the Special Committee of the Legislative House on Tuesday, 17th, responsible for the regulation of “virtual assets” in Brazil.

But the matter can be put on the agenda at any time for immediate discussion and voting by federal deputies, in case parliamentarians approve an urgent application presented by Lira, provided for in article 155 of the internal regulations.

With the guidelines provided for in PL 4401/2021, cryptocurrency exchanges want to ensure that there are no restrictions on innovation, allowing, for example, that they can sell shares, debentures and other tokenized securities. Although the bill in progress in Congress considers this possibility, it will be up to the CVM (Brazilian Securities and Exchange Commission) to deliberate on the matter and impose its decision on the market.

In parallel with the Bitcoin Law being processed in Congress, the CB prepares rules to equate exchanges and digital asset trading platforms, both domestic and foreign, to investment banks.

As the bill has a principled character, which outlines flexible guidelines, giving the financial authorities the final word on the rules to be imposed on companies operating in the market, the CB started meeting with executives from the main exchanges operating in Brazil, like the foreign giants Binance and Coinbase and the Brazilian Mercado Bitcoin.

The executives of these companies opened a dialogue channel with the CB’s board of directors and with the institution’s president, Roberto Campos Netto. Campos Netto has already given numerous statements recognizing the potential of blockchain technology and, in particular, decentralized finance as an instrument for modernizing the financial system. Even companies in the sector, such as Stellar, Consensys, AAVE and Mercado Bitcoin itself are participating in the projects to develop the digital real.

At these meetings, the CB suggested that it will oblige exchanges to implement KYC/AML policies for identifying customers and monitoring suspicious transactions. In addition, exchanges will have to report any transaction above BRL 10,000 to COAF (Council for the Control of Financial Activities).

Currently, by virtue of a specific instruction for transactions with cryptoassets, the Federal Revenue requires that only operations above BRL 35,000 be notified. Now, including crypto-crypto transactions, even if there is no conversion of realized profits into fiat currencies.

Another rule evaluated by the CB will be the total separation between the resources invested by clients and the capital of the companies. Thus, in the event of bankruptcy, there will be no confusion between the assets of clients and the bankrupt estate of companies, a rule that is already valid for investment banks.

The bill and the rules to be implemented by the financial authority also aim to stop the use of cryptocurrencies for money laundering and foreign exchange evasion. In addition to fighting financial crimes, with these measures, the Central Bank intends to protect the country’s savings level, which is currently considered too low by the institution.

Although there are no data available that validate such an association, the absence of regulation can still favor the financing of trafficking or terrorist actions, according to technicians from the Central Bank and the Ministry of Economy who are working on the topic.

Financial Crimes

Last year, joint actions by the Federal Police in association with the Public Ministry dismantled two billion-dollar fraud schemes involving cryptocurrencies. In July 2021, the PF launched Operation Daemon, having as main target Cláudio de Oliveira, also known as “Bitcoin King”.

Arrested since July of last year, Cláudio was responsible for Grupo Bitcoin Banco, which came under investigation in 2019 when he filed for bankruptcy under the claim to have “lost” 7,000 Bitcoin (BTC) would belong to investors. The amount is currently valued at US$ 300 million, or just under R$ 1.5 billion.

In August, the Kryptos operation dismantled a financial pyramid scheme based on investments in cryptocurrencies commanded by Glaidson dos Santos, the “Pharaoh of Bitcoins”, ahead of GAS Consultoria Bitcoin. The contracts signed by the company with its customers promised a fixed monthly income of 10% on the amount invested. According to the investigations, the GAS Consultoria scheme would have moved BRL 38 billion and affected at least 67,000 investors.

As Cointelegraph Brasil recently reported, Economy Minister Paulo Guedes wants to create ‘DigiTAX’, a exclusive tax to tax all transactions with Bitcoin and cryptocurrencies.