Brazil and Bitcoin: an analysis of the crypto regulation bill
On the morning of December 22, Brazilian President Jair Bolsonaro signed a bill that regulates Bitcoin as a means of payment.
The adopted document establishes the regulatory framework for the main cryptocurrency usage in Brazil. The bill was passed by Congress, without prior changes to the text, before signing by the President.
Protracted history
Brazil has been trying to legalize cryptocurrency for several years. The biggest shift in this area was made in February 2022, when Congress began to review the bill. Most of the documents of both the Senate and the House of Representatives were rejected and sent for revision.
The FTX collapse changed this situation. Given the urgent need to form a legislative framework for crypto, only a couple of amendments were made to the bill, and the document was sent to the President for signing.
The essence of the law
The new document recognizes Bitcoin, like any other virtual asset, as a “digital representation of value”. An asset can be used as a means of payment, as well as an investment. In the first case, the Central Bank of Brazil (BCB) takes over the regulation, and the country's Securities and Exchange Commission (CVM) will handle the investment aspect of Bitcoin.
Many people criticize the decision of granting power to the Central Bank. The bank will not be able to repeal the law, but it will probably prevent Bitcoin from being granted the status of a means of payment. BCB President Roberto Campos Neto has repeatedly expressed doubts about the reliability of cryptocurrencies due to their volatility while prioritizing the launch of the CBDC, which is scheduled for 2024.
Challenges for crypto companies
Regulation of the cryptocurrencies by the Central Bank will also lead to its intervention in the activities of virtual asset service providers (VASPs). Companies will have to obtain regulatory approval before they can start operations in the country.
Given the high level of bureaucracy, it could be very hard for a crypto company to obtain a license in Brazil.
Accountability
The positive side of a new law is the introduction of a regulatory framework for crypto-related crimes. The illegal use of cryptocurrency is now considered to be fraud and money laundering, which can result in imprisonment from 3 to 10 years, and huge penalties.
Legalization is still a long way off
The signing of the law by the President is a very good start, but the complete adoption of crypto is not on the table. Firstly, the new law will go into effect 180 days from the day of its signing. Secondly, the document has not yet been tested in practice and was adopted in haste, due to the circumstances described above. It will probably be recalled or rewritten, and this process often takes a lot of time.
In addition, several aspects were completely omitted:
● One of the rules requires the VASP to keep users' funds separate from its own capital. This does help to prevent the problem, but creates a big barrier for crypto companies and a high starting threshold for entering crypto;
● Mining farms are not eligible for tax benefits, even if they use green energy;
● Government entities are not allowed to open accounts and manage funds in the VASP.
This and many other problems will soon become noticeable to the Brazilian crypto community, which will not leave the adopted bill without attention. In other scenarios, crypto will be legal in the country, but practically not applicable.
