Key Takeaways
- Brazil’s strict central bank rules could force 290 of 300 crypto exchanges to exit the market.
- High capital demands up to $7.2M are pricing out smaller platforms, driving a wave of market exits.
- Crypto firms must apply by Oct 30 or shut down, consolidating the market while slowing innovation.
Brazilian Crypto Market Expected To Consolidate After New Capital Rules Go Into Effect
The Brazilian crypto industry is on the verge of a profound transformation, as most exchanges and crypto institutions are expected to exit the market.
Analysts say the new capital requirements and auditing procedures would decimate providers that cannot meet all requirements established by the central bank.
Of an estimated 300 virtual asset service providers (VASPs) currently operating in Brazil, only 20 to 25 would have the structure to apply for authorization to keep operating, with just ten actually obtaining a license to keep their VASP activities.
Stringent prudential capital requirements imposed by the central bank would be a roadblock for smaller companies, which would have to hold capital of up to 37.2 million reais, nearly $7.2 million, depending on their classification.
Some smaller firms have already exited the market: Bitnuvem, NovaDAX, Digitra, and Coinext all announced the end or restructuring of their retail operations, but did not attribute these decisions to these rules.
Nonetheless, capital requirements are not the only compliance issue that crypto firms face in Brazil: it is the whole structure of compliance, including auditing, AML/CTF procedures, constant reporting, and provision of information to the central bank, that increases costs and makes it economically unfeasible to keep operating, according to local reports.
Isabel Longhi, director of Public and Regulatory Policies for Latin America at Ripple, stressed that this will represent a market correction movement that, for the time being, will restrict innovation.
Talking to Valor Investe, Longhi explained that consolidation is expected as the Brazilian crypto market matures. “Market downsizing is natural and should happen. What is unnatural, if any, is to prevent the market from existing and take out small players simply because they are small players,” she stressed.
“You separate the wheat from the chaff, and it was the goal of everyone who wanted regulation,” she concluded.
The magnitude of this consolidation process will only be clear after October 30, when firms will have to apply for authorization. VASPs not applying will have 30 days to wind down their operations and notify their customers of the closure.
