Interest rates at low levels, which impact all assets in a widespread way, are the main driver for cryptocurrencies development in Brazil. They will lead people to become aware that the construction of equity will necessarily undergo some exposure to digital assets, seen as not correlated with the market, especially as the level of financial education of Brazilians increases.
The findings come from the executive director of the Brazilian Blockchain and Cryptocurrency Association (ABCripto), Safiri Felix, who adds that digital assets are democratic by nature and allow low amounts to be invested in them.
“We often say these assets are a big macro hedge in the case of drastic events such as global financial crisis”, he said. In an interview with PanoramaCrypto, the executive also talks about the cryptocurrency bill being processed in Congress, the performance of the Internal Revenue Service, stablecoins, scandals at Atlas and Banco Bitcoin and investment funds. Read the interview in full:
How do you evaluate the crypto regulatory environment today in Brazil?
In practice, IN 1,888 (normative instruction of the Internal Revenue Service regulating the provision of information by exchanges) was the first effective regulatory measure in the Brazilian cryptocurrency market, with a series of procedures to be followed. And a regulatory framework is being built, which is the bill being processed in the House of Representatives. The work done in Brasilia was very fruitful and, according to what was discussed, the necessary elements are given to have an adequate regulation.
And what is your assessment of this regulatory framework discussed in Brasilia?
It is still too early to make a diagnosis of the regulatory framework, once the final report has not been published yet. We rely on the common sense and quality of the technicians involved in the writing of the text. Our work was to point out paths, raise the level of discussion. The work is now being resumed with the end of the Congress recess. However, no further meetings are planned. We see the possibility of some difficulty in discussions this year, mainly because it is an election year. In this sense, the second semester always ends up being more complicated. Therefore, the definition will depend on a number of factors yet.
What is the benefit of the cryptocurrency market having clearer regulation?
The main benefit is to give uniform treatment to the sector’s agents. Today ABCripto defends three major regulatory flags for the market. The first is the creation of a specific National Classification of Economic Activities (CNAE) code for exchanges. Today there is not yet a framing pattern. Another point is the mandatory list of entities to which activities must be reported, for example Coaf, etc. This item depends on the standardization of CNAE. The third flag is the recognition of cryptoassets in the Brazilian payment system. This would allow more people to do business with bitcoins and would also give greater tax clarity.
What international example of regulation should be followed by Brazil?
The Japanese model is a good example, in which cryptoassets are a means of payment like any other. I would also mention the Swiss legislation in the case of issuing tokens.
Recent scandals have affected the credibility of the cryptocurrencies sector in Brazil; what points can and should be improved in compliance from the companies which belong to the sector?
Today, there is no compliance legislation for the sector. I think we should work on operational standards that go towards self-regulation, pointing out good practices. Among them, prevent the use of intermediaries in operations, increased security for the user, for example, separation of the broker’s capital from the client’s capital, security standards to avoid hacking and others. We are working on the preventive aspect, so that we can make the transition to a regulated market less traumatic as possible.
The IRS is trying to have greater control of cryptocurrencies owned by Brazilians. Do you see the possibility of being an additional tax attempt?
The IRS is doing its job, it doesn’t legislate or set rates. It understands that the market is growing and has also been quite helpful in listening to companies in the sector when it comes to adapting legislation. I think this performance gives a good signal to companies and it is a good example of how to act positively. On the other hand the IRS does not legislate, it complies and enforces the legislation. If there are new taxes, for example, I understand that they must be complied with.
The important thing is to have the rule well defined?
Yes. For example, today the market has no entry barrier. Anyone can put a broker in action, but it is a risk, for example, not having a history, not ensuring that there is minimal technical competence. In my personal view, the Brazilian market for digital assets is overly scattered. The size of the market, for example, does not justify having so many brokers.
Why does that happen?
These are different reasons. Many entrepreneurs have seen an opportunity, but are not prepared, that’s why we see a big mortality rate in this business. Margins are tight, it’s not so simple to capture customers due to regulatory issues. It is a very challenging market despite the potential at the medium and long term.
So it is the opposite of the banking sector, which is very concentrated?
In fact, if you’re looking at liquidity, it’s concentrated among the top five exchanges.
Cryptocurrencies in Brazil
How do you evaluate the emergence of Brazilian funds that invest in cryptocurrencies?
Funds are a global tendency to create regulated instruments that have exposure to cryptoassets. I think the funds will give people more security to operate in this market and they will perform as an instrument of democratization for such investment. They do not compete with those who take custody on their own today, because they will attract investors who would not enter this market, such as the institutional ones. Institutional investor, for statutory reasons, does not do self-custody and I don’t think they should do it in the future.
Do you see the funds as a healthy market movement?
I think so, but first we have to see if these funds will resist over time. The standards are quite demanding in this market. If the funds manage to go through a downturn period, they tend to consolidate in the market.
How do you think cryptocurrencies will develop in Brazil?
The main driver of local development are low interest rates, which impact all risk assets in a widespread way. And that goes through a financial education issue, as people are aware that equity construction is a marathon and not a 100-meter race. It should necessarily go through some exposure to what we call unrelated assets. Another aspect is that digital assets are democratic by nature and allow low investment amounts. Therefore, they are more interesting than other investments in the capital market that have a stronger entry barrier.
And they end up also being an instrument of protection against crisis and inflation…
We often say that assets are a large macro hedge in the case of drastic events such as global financial crisis. You have other hedge instruments, but we see that bitcoin has some features that make us believe that it can perform a little better than traditional hedge instruments.
What role do you thinks the stablecoins will have in this Brazilian context?
Today, the main use case of stablecoins is for those who operate in the cryptomarket. They give agility to move resources from one broker to another. In parallel, they support the ecosystem development and have desirable characteristics such as price stability. In the Brazilian case, it is still necessary to have greater clarity regarding the stablecoins. For example, would the tether dollar have dollar or bitcoin treatment? These are some of the open issues.
ABCrypto Agenda in 2020
What is ABCripto’s stock agenda throughout 2020, what are the priorities?
We intend to continue with the regulatory actions, adopting a propositional stance throughout the construction of the framework. We will also always seek to bring qualified information to the public for purposes of raising the level of the debate and offer the industry’s point of view to the public opinion. Our function is to show that this is a market for serious companies and an access door for an important tool to build equity and portfolio diversification.
We want to bring knowledge to the public without assuming diminished endorsed postures. Especially because we are living a time when we are less and less sure of what will happen tomorrow. Digital assets are the most anti-fragile ones, and for that reason they are increasingly important.