Amid widespread unpredictability, the Brazilian cryptocurrency market is receiving regulatory clarification.
The most recent regulatory framework passed (1) by the Brazilian Congress will be for the financial institutions of the nation's benefit. It will serve as a bridge between local liquidity and global markets.
A liquidity crisis continues to spread among controlled exchanges and decentralized finance (DeFi) alike, even as the global cryptocurrency community is still recovering from the FTX collapse.
It will soon be determined whether the impending regulation that will be brought about due to FTX's bankruptcy will provide a silver lining to the cryptocurrency market.
The lower house of Brazil's national legislative body, known as the Chamber of Deputies, recently approved a regulatory framework that allows citizens to utilize cryptocurrencies like bitcoin and ethereum as a form of payment anywhere within the country.
It is believed that 10 million Brazilians, or around 5% of the population, participate in trading crypto assets.
Mercado Bitcoin is a Brazilian company that operates as Brazil's largest centralized exchange. It now has over three million members. Players from other countries, like Coinbase and Gemini, have a small presence in Brazil now.
Therefore, global bankruptcies like FTX's have not had as significant of an effect on the blockchain sector in Brazil as they have had in the United States or Europe.
Going the Al Salvador Way?
Recent legislative developments in Brazil offer a glimmer of optimism at a time when governments worldwide are cracking down on the cryptocurrency business without distinguishing between legitimate and fraudulent participants, particularly in the United States and Europe.
Even though the Brazilian Congress voted on the framework not to make Bitcoin legal tender in the same way it was accomplished in El Salvador, making it legal crypto as a payment option is a good move to encourage local companies to adopt and conduct business using crypto. This was achieved in El Salvador.
The Current State of Affairs in Brazil's Crypto space
No one anticipated it would be put to the vote so quickly, even though Brazil has been slowly preparing for the licensing of tokenized assets, and the present administration has had a constructive attitude toward financial innovation for the past couple of years.
The Brazilian SEC is working on changing the country's legislative framework to regulate cryptocurrencies better. These changes are being pursued by the Brazilian Securities and Exchange Commission. The securities regulator approved 2021 a framework known as a sandbox to test blockchain businesses and solutions.
In addition, Banco Central do Brasil divulged its plans to launch a pilot program for a digital currency that the Brazilian government fully backs by the end of the year.
Jair Bolsonaro, the current leader of Brazil, is likely to give his approval to the framework before he leaves office on January 1, 2023. In the past, he has depended on the Ministry of Economy as well as the advice of technical nominees for complex economic decisions.
Although having a defined regulatory regime will provide more legality for some institutional players to participate, Brazil was in no way hampered in terms of its ability to innovate inside this sector.
With the new regulatory framework in Brazil, banks and other financial institutions may decide to experiment with new product offerings. These may include crypto-based credit lending and possibly even crypto-based money transfers. Before Congress passed the bill in Brazil, three of the country's largest banks had already begun offering products and services linked to cryptocurrencies.