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Crypto contradictions: how regulations are moving adoption in Brazil

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Crypto contradictions: how regulations are moving adoption in Brazil
Source: CloudBet

The largest country in Latin America and 5th biggest in the world, Brazil has always been plagued by corruption and inefficiency. Crypto ecosystems may help – if only regulations will let it.

  • Brazilian-style regulatory approach
  •  Death and taxes
  • The other side of certainty
  • Backlash from entrenched powers

What does the future hold?

This is part of a series of stories on crypto regulation and worldwide adoption by the Cloudbet blog. To learn more, check out how regulations are shaping adoption in Africa, and the curious case of crypto in India.

Brazil is a land of contradictions, notorious for having a disgruntled, patchwork-style legislative framework – a trait that generates confusing, intertwined norms that in most cases lead to a structural delay in innovation. In this context, the various administrative bodies that make up the national financial regulators finally began following the rest of the world in their mission towards the regulation of cryptocurrency usage. However, like most things in the country, this has been a path ridden with contradictions and uncertainty.

After bitcoin overcame the deep web and underworld currency-shilling, finally overcoming the borders of Silk Road and media sensationalism, the first Brazilian cryptocurrency exchange emerged in 2011, remaining in operation up to this day. Many other exchanges have popped up ever since, contributing to the dissemination not only of BTC and altcoin markets but also of a whole budding crypto ecosystem.

After the 2016-2017 crypto markets boom, the government’s interest also peaked, spurring political and regulatory action in its wake.

Brazilian-style regulatory approach

Since then, Brazilian regulatory bodies have begun to take interest in this issue, not only because of the potential disruption to the current wealth distribution model but also because of bitcoin’s overvaluation in 2017. At the height of the mania, the number of people registered in crypto exchanges reached 1.5 million, representing more than double the number of individuals registered as traders on the stock exchange.

These huge numbers led to the holding, in September 2017, of a public hearing in the Brazilian Chamber of Deputies’ Special Committee on Virtual Currencies, in order to discuss crimes in the virtual currency market. That gathering was attended by representatives of the Federal Public Ministry and other entities concerned.

On that occasion, the discussions involved the points of the law project n. 2.303/2015, which intends to frame the digital currencies in the Payment Arrangements law under the supervision of the Central Bank of Brazil, similar to the regulation of credit cards.

Apart from that, and although there are some drafts proposed by congressmen who dream of regulating it, there are currently no specific prohibition or regulation on the use of cryptocurrencies in the country. The only official position so far is an instruction by the Central Bank of Brazil, who warned citizens about the “risks of possible fraud or other improper business conduct, which may result in equity losses.”

Death and taxes

Nothing is certain but death and taxes, right?

In the Brazilian tax scene, that couldn’t be truer. Here, cryptocurrencies – because they are not officially recognized as currencies – are considered intangible assets with a patrimonial value [much like any work of art]. That doesn’t exactly offer a clear-cut status for crypto – that is, except for tax purposes. As a result, the Federal Revenue Service requires Brazilians to annually declare their crypto holdings in their income tax declaration.

If citizens, through buying and selling crypto, accrue capital gain in excess of R$ 35,000.00 [approximately € 8,100 as of the publishing of this article], then this must be stated in their Annual Adjustment Statement held every April – and of course, duly paid for.

In mid-2018, the Brazilian regulatory agency made headlines after they authorized Brazilian investment funds to make indirect investments in cryptocurrencies abroad, so long as these were lawfully admitted and regulated by the investment’s host country.

This shows that there is a certain openness by the Brazilian regulatory bodies to the benefits of blockchain technology. This openness is even more conspicuous by looking at the development of the international blockchain consortium R3, which includes massive Brazilian financial institutions such as Banco Itaú. Such institutions are not known for being risk takers or going against regulatory trends.

The other side of certainty

But alas, Brazil is the land of contradictions, after all. If on the one hand, the sky looks clear, on the other, gray clouds seem to be building up – and if taxes are always certain, all else is far from it.

On November 30, 2018, under the guise of preventing criminal actions involving money laundering, the Brazilian Federal Revenue Service [FRS] initiated a crackdown on cryptocurrency exchanges and brokers, publishing a rule mandating that such companies deliver a monthly report with all transactions in digital assets. The initial objective of such strategy was to cross-check exchange information with personal tax filings to seek and punish evaders, but one of the side effects is making it harder – and more expensive – for these businesses to operate.

Moreover elsewhere, in the field of regulatory issues for cryptocurrency exchanges and brokers, the Brazilian Securities Commission [CVM] has not only warned citizens against the consequences of money laundering, but also tightened oversight over companies that sell crypto assets as financial investments either as security tokens or as selling quotas, which is prohibited by the aforementioned body, and imposed severe fines.

The uncertainty of the current status brings about quite a few negative consequences, including the judicialization of fines, wasteful – and repeated – investigations by the Public Ministry [both on national and local levels], and the unnecessary sensationalism that ensues by the negative media exposure. None of these usually lead to a healthy landscape for innovation to thrive.

Backlash from entrenched power

On top of that, part of the discussions has already been brought before the courts, motivated by incumbent financial institutions that seem like they are trying to stop the use of cryptocurrencies in Brazil.

As an example of a case, some of Brazil’s largest banks have issued notices stating the unilateral closure of bank accounts held by major cryptocurrency exchanges, alleging risks and the impossibility of tracking money laundering offenses.

The affected exchanges have started a judicial battle against the measure but were ultimately unsuccessful. A Brazilian court of appeals has ruled that banks have the freedom to discontinue the relationship with a person or company, as previously justified.

This is undoubtedly a reprehensible retaliation against a technology that, in a sense, is beginning to drain an increasingly larger share of resources from the incumbents. A potential consequence of driving legitimate players off the market is that crypto may be driven to the informal economy.

What does the future hold?

It is a consensus among scholars, enthusiasts and even most government agencies and institutions that the use of cryptocurrencies is already transforming – and disrupting – the financial market.

If the past is any indicator, in terms of speed of regulatory matters involving this open and global technology, a comprehensive body of legislation in Brazil may take quite some time. Drawing a parallel between the arrival of the Internet in Brazil, in 1995, and its regulation through the so-called “Civil Internet Framework” in 2014, 19 long years had to go by until national legislators could be bothered to do it.

Making cars illegal would never return horses to the street of Rio de Janeiro; it would only mean people would take a lot longer to move around.

If this technology represents – as many seem to believe – a new layer over the internet as well as a new “global computer”, then any attempts at regulating it should be based more on common and universal principles among nations than on local technicalities.

In this sense, in Brazil, there is hardly any regulatory understanding at all. So far, the only points addressed by officials were the more obvious effects of cryptocurrency usage [as has been done by the FRS], whose strategies rest – quite justifiably – on the side of caution. But the clock is ticking, and being overly cautious – or too prone to “deferences” to incumbent financial institutions – may backfire.

In the long run, this approach is simply not appropriate to reap all the potential from this technology, and the country may be left behind. Making cars illegal would never return horses to the street of Rio de Janeiro; it would only mean people would take a lot longer to move around.

The original version of the article was published by Cloudbet and is part is part of the Cloudbet Blog’s series on big-picture blockchain stories. For more in-depth discussions on all things crypto, tune into our In the Cloud section and follow us on Twitter.

Author: Leopoldo Lopes



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Press Release

Ampleforth [AMPL] To Conduct First IEO on BitFinex and Ethfinex’s Blockchain Project Launch Platform, Tokinex, in June

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Ampleforth [AMPL] To Conduct First IEO on BitFinex and Ethfinex’s Blockchain Project Launch Platform, Tokinex, in June
Source: Pixabay

Ampleforth expected ticker symbol AMPL, announced today it will be the first initial exchange offering to be conducted on Bitfinex&Ethfinex’s token project launch platform, Tokinex.

Ampleforth’s whitepaper, co-authored by Manuel Ricon Cruz, a researcher at the Hoover Institute, introduces the Ampleforth protocol. Further context for understanding the implications of AMPL as a new type of synthetic commodity and economic theory is provided in the accompanying Red Book.

The appeal of digital assets like Bitcoin is that they are uncorrelated with traditional asset groups. But, among large-cap digital assets, there is a high degree of non-diversifiable risk and the price volatility of most cryptocurrencies mimic that of Bitcoin.

Evan Kuo, CEO, and founder of Ampleforth said, 

“We see Amples as having a near-term utility that naturally dovetails into a much bigger vision, and I can’t wait to see it unfold. The Bitfinex and Ethfinex user communities are among the best in the industry, and we are excited to work alongside the Tokinex team for Amples’ exchange debut.”

Ampleforth’s protocol receives exchange-rate information from trusted oracles and propagates that to holders of Amples by proportionally increasing or decreasing the number of tokens each individual holds according to the magnitude of the exchange rate fluctuations over the previous 24 hrs.

For traders, these changes in the exchange rate and quantity translate into changes in Ample’s market capitalization. Ultimately, unique trader behavior in response to the protocol’s incentives is expected to produce an asset price with lower correlation to Bitcoin than other digital assets.

Jean-Louis van der Velde, CEO at Bitfinex, stated 

“The Ampleforth project is fascinating to us with its refreshing vision to become a unique digital asset and serve as a potential future reserve currency. We believe it can provide a unique volatility profile, uncorrelated to other digital and traditional assets. This uncharted territory makes Ampleforth, and the team behind it, the perfect first project to list on Tokinex and we are excited to provide an opportunity for the community to be a part of it.”

Paul Veradittakit of Pantera Capital said,

“Ampleforth is interesting because there’s not another asset like it, so it will likely not be correlated with other large-cap cryptocurrencies. With more traders and enthusiasts entering the ecosystem since the last rise, there needs to be an option like AMPLs, which could reduce the risk for the entire space, and potentially attract more institutional interest.”

About Ampleforth

Ampleforth is a digital asset protocol for smart commodity-money funded by Brian Armstrong, True Ventures, Pantera Capital, and Slow Ventures. For more information, please visit our website.

About Tokinex

Launched in May 2019, Tokinex is the IEO platform of Bitfinex and Ethfinex that brings fair opportunity to participate in curated token projects. It gives qualified participants the chance to contribute to pre-vetted token sales directly from their personal wallet through common crypto assets, and with no personal data or funds held by the exchange.

Tokinex uniquely does not require tokens to pay an upfront fee for listing and following a successful capital raise are subsequently listed on the two exchanges as permitted by applicable law.

For further information please contact.

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