An Overview of Brazil’s Economy
Brazil is home to over 200 million people with a GDP per capita of about US$8,802. Its economy is lucrative thanks to sectors such as tourism, agriculture, mining, and energy. Brazil is also one of the leading oil producers in the world, which significantly funds its economy. According to IMF 2024, Brazil has the 8th largest GDP worldwide.
The nation’s economy remains decent due to its tight labor markets and increased investment. It is an upper-middle-income economy. However, the country’s currency has been in rough shape. This changing dynamic has spurned interest in cryptocurrency in recent years.
The State of Crypto Adoption in Brazil
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By the end of 2023, 26 million people in Brazil owned cryptocurrency, about 12% of the country's population. Brazil records an insane transaction volume each year, earning it a spot in the top 10 countries regarding crypto adoption.
With 12% of Brazil's population in crypto, the country is part of the top ten in the world in terms of crypto adoption. It trails only behind the UAE, Vietnam, the USA, Ukraine, Indonesia, and the Philippines. This feat depicts Brazil's growing interest in a traditional banking alternative.
Brazilians turn to cryptocurrency as a refuge against the country's currency devaluation. Now, many Brazilian adults save their funds in stablecoins, which they deposit in software and hardware wallets. The amount transacted yearly amounts to billions of dollars. Along the way, people dappled into other blockchain and crypto capabilities.
Crypto exchanges, like UEEx, now view Brazil as a prominent market and spot for possible expansion. This further fuels the penetration of cryptocurrency into the country and attracts the government's need to set regulations and taxes.
A Brazilian digital currency, Drex, is also in the works. The organization behind the currency creation is the Banco Central do Brasil (BCB). The currency aims to be used alongside the Brazilian real to reduce operation costs and ensure more financial inclusion. The estimated launch for the digital currency is slated for early 2025.
Crypto Laws in Brazil
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Brazil hasn’t enacted laws recognizing cryptocurrencies as legal tender, but there are legal frameworks that regulate their use as assets.
While Brazil considers only the Brazilian Real as legal tender, cryptocurrencies are classified as assets under Brazilian law.
Brazil formally defined crypto assets in May 2019, with the Federal Revenue Office issuing Normative Ruling No. 1,888/19 for reporting crypto transactions. Building on this, the 'Legal Framework for Virtual Assets' was enacted on June 20, 2023, giving the Brazilian Central Bank authority to regulate and supervise crypto exchanges and related activities.
Taxation of Cryptocurrency in Brazil
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The Federal Revenue Service of Brazil oversees the taxation of crypto assets. Brazilians' profits from selling or trading cryptocurrency are subject to capital gains tax. However, not all profits are taxed, only those that exceed R$35,000 in a month. Below this threshold, the investor goes unscathed.
Brazilians must familiarize themselves with crypto taxation to ensure thorough compliance. The RFB employs advanced technology, including AI, to nip tax evasion. If caught trying to maneuver, it can lead to penalties.
Let's take a look at the different types of taxable events in Brazil:
- Selling cryptocurrency for fiat/cash
- Trading one crypto asset for another
- Using cryptocurrency as a means of payment for goods and services
In contrast, buying cryptocurrency with fiat and transferring cryptocurrency between wallets don't attract taxes.
Capital gain tax varies from 15 to 22.5% annually, depending on the profits gained. The system promotes proper reporting and transparency by enforcing a progressive tax system. These taxes refer to selling cryptocurrency for cash and trading one crypto asset for another.
The income tax on crypto transactions ranges from 7.5 to 27.5%. Events that attract these taxes are selling goods and services for crypto payment or mining.
What Factors Drive Crypto Adoption in Brazil?
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Brazilians are at the frontline regarding crypto adoption. What has led the country's people to adopt crypto while the rest of Latin American countries lag? Here are the factors driving increased crypto adoption in Brazil:
Restricted Access to Traditional Banking
Several Brazilians lack access to traditional services, which can be due to geographical or societal status. Cryptocurrency serves as an alternative means of financial services, allowing people to participate in local and international trades.
Financial Inclusion
Cryptocurrencies offer a medium for all Brazilians to access financial services. Brazilians can sell, lend, and even invest without needing to open a traditional bank account, which often requires a lot of paperwork. It can also promote economic growth, stifle poverty, and improve well-being.
The interest is apparent in the recent launch of a crypto exchange platform that reached a million users in just a month since its launch. This showcases Brazilians' interest in how cryptocurrency facilitates fast and seamless transactions.
Furthermore, according to a Brazilian survey by Consensys and YouGov, 41% of Brazilians either own digital assets today or have previously owned those.
Investment Opportunities
Brazilians have a cascading economy, and cryptocurrency appears to be a favorable investment option as the currency devalues. They HOLD, stake, lend, or borrow to make profits.
According to Thomaz Fortes, the crypto lead at Nubank, the main utility for crypto in Brazil right now is as a speculative investment. “Customers want a way to expand their earnings,” he explained.
Lower Transaction Fees
Transferring crypto costs less than transferring fiat. Hence, many Brazilians prefer to pay for goods and services with cryptocurrency rather than the Brazilian Real. Several crypto exchanges, like UEEx, offer reduced transaction fees, so people can transfer money for less than the cost they would normally do with the Brazillian Reel.
Challenges to Cryptocurrency Adoption in Brazil
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While crypto adoption is rising, some challenges still stifle the country's adoption level. Here are the challenges:
Education
Many Brazilians still need to become familiar with cryptocurrency. They do not know which sites to use or the basics of cryptocurrency. Awareness campaigns are required to educate Brazilians on the benefits and risks of cryptocurrency.
The number of Brazilian crypto users is projected to grow to 31 million as more people become knowledgeable about how the technology works. This rise could have been much more meteoric if not for the bottleneck of lack of education.
Volatility
Cryptocurrencies are known for their price fluctuations, making it difficult for Brazilians to rely on them as stable assets. The unpredictable nature of the market leads many to view cryptocurrency as a high-risk investment, deterring adoption for everyday use or long-term savings.
Many Brazilians would prefer to invest in stocks than invest in cryptocurrency, which is considered risky.
Security concerns
Many Brazilians fear cryptocurrency is liable to hacks and scams, so they don’t participate to protect their funds. Many are dissuaded from taking the risk, especially those unfamiliar with the technology. Moreover, there are several security concerns related to cryptocurrencies.
Conclusion
Brazil is at the forefront of crypto adoption worldwide. Every year, more people adopt and participate in crypto in its many forms. Brazil's stand on cryptocurrency is clear, as it is legal in its region.
However, there is still a need for more regulation. Of course, we will update occasionally, but we are not promising.
Frequently Asked Questions About Crypto Adoption in Brazil
What is Brazil’s Current Adoption Rate?
The current Brazil crypto adoption rate is roughly 12%. Of Brazil’s 212 million people, 26 million own cryptocurrency, earning Brazil the number 6 spot among the countries with the most crypto adoption.
What is the Most Popular Crypto Token in Brazil?
The most preferred crypto token in Brazil changes. However, some recurring crypto tokens are Bitcoin, Ethereum, Neirei, AIT Protocol, and WAT.
Is Crypto Trading Legal in Brazil?
Yes, crypto trading is legal in Brazil. The people in the nation are free to trade, pay, and invest in crypto-related activities.
How Much Taxes Do Crypto Holders Have to Pay in Brazil?
Brazil taxes its citizens who are involved in cryptocurrency. However, the tax only applies to three events: trading crypto for cash, conducting crypto-to-crypto transactions, and selling goods and services for crypto.
The first two attract the capital gain tax if your profits exceed R$35,00000 monthly. The tax rate ranges from 15 to 22.5%. The last mention attracts the income tax, which ranges from 7.5 to 27.5%. The tax system used is progressive taxes.
Disclaimer: The views expressed in this article are not intended as financial advice and should not be taken as one. We take no responsibility for any financial decision made due to this article.
