Between 2013 and 2015, the US government began debating the regulation of cryptocurrencies. While those discussions have evolved, there are still many kinks to work out. On the other hand, Brazilian self-regulation is making significant strides, providing a healthier ecosystem than in the world’s largest economy.
This is happening because many US agencies disagree with each other, which prevents the proper functioning of the legislation. In Brazil, regulatory bodies are working more cohesively.
A Brief History of Crypto Regulation in the US
The Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, was one of the first agencies to address the topic. Concerns related to money laundering, capital flight, and terrorist financing were addressed in the guidance (FIN-2013-G001) issued by the agency.
Soon after, in April 2014, the Internal Revenue Service (IRS) published Notice 2014-21, which recognized cryptocurrencies as property and, therefore, subject to certain taxes. This meant that the trading of virtual assets would be interpreted the same way as the transfer of property.
In parallel with this and other measures, both federal and state, discussions in Congress intensified in the following years. The first requests for the creation of Exchange-Traded Funds (ETFs) were mediated by the Securities and Exchange Commission (SEC), which to this day disputes jurisdiction with the Commodities Futures Trading Commission (CFTC).
Led by Gary Gensler, the SEC tends to view most cryptocurrencies as investment contracts, according to the Howey Test. The CFTC, led by Caroline D. Pham, considers most of them to be commodities. The debate over the correct categorization continues to this day, making the US a not-so-legally-safe environment for those seeking to innovate with blockchain technology.
Regulation in Brazil: Several Steps Ahead
Due to Law No. 14,478/2022, also known as the “Cryptoassets Law,” the federal government established guidelines for cryptocurrency regulation in the country. In general, most cryptoassets, as well as Virtual Asset Service Providers (VASPs), have been categorized and are allowed to operate in the country as long as they follow strict rules.
The main regulatory body is the Central Bank of Brazil (BCB). All digital assets categorized as cryptocurrencies fall under its purview, while those that potentially qualify as securities are regulated by the Securities and Exchange Commission (CVM).
For example, the Howey Test is applied by the CVM to certain tokenizations but with some modifications. Utility tokens can be classified as securities unless the way they are offered and sold to the public creates an expectation of profit. Cryptocurrencies are only classified as securities if they are part of a collective investment context.
Security tokens (digital representations of pre-existing securities, such as exchange shares or commodities) also fall under the CVM’s scope.
Brazilian Self-Regulation in Synergy
In the years before state regulation, autonomous private organizations were built to promote internationally recognized good governance practices. A great example is the Brazilian Association of Cryptoeconomy (ABCripto), which has worked alongside authorities to build an orderly legal framework for the sector.
Similarly, the Brazilian Association of Tokenizing and Blockchain Companies (ABToken) promotes educational initiatives for businesses of all sizes and facilitates the technological transition process. These and other independent initiatives have operated in unison to ensure that the public sphere does not overstep its bounds, especially in such a highly competitive and dynamic market.
This collaboration between public and private initiatives allows the legal framework for cryptocurrencies to advance more naturally and organically, paving the way for foreign companies to become interested in investing in emerging economies.
Although some discussions are still ongoing, the BCB is redesigning the current economic model to make it more digital. The Drex, also known as the Digital Real, will integrate with decentralized finance (DeFi), which means both the centralized government ecosystem and the decentralized, distributed one can coexist without major technical difficulties.
