A little over a decade ago, 44% of Brazil’s population [1] was considered unbanked, one of the highest rates amongst BRICS nations. Fast forward to 2021 and that percentage had dropped significantly to just 16%. 

The secret to its success? A new Brazil Crypto Report from Metaco says a thriving fintech ecosystem has spurred the adoption of crypto and digital assets, drawing more citizens into relationships with financial providers. It attributes that rapid growth to a potent combination of progressive regulation, an emphasis on innovation, and a rapidly maturing financial infrastructure. 

The result is an embrace of digital-first banking by the majority of the populace, with 1 in 5 Brazilians [2]now owning cryptocurrency. The country currently ranks within the top ten on Chainanalysis’ Crypto Adoption Index [3] and is projected to have digital asset revenues of USD $1.5 billion by 2027 [4]. 

Let’s dig a little deeper to understand how this leap became possible and how other nations might emulate Brazil’s recipe for success. 

Progressive Regulation

Regulatory clarity is the backbone of any successful crypto hub. Coupled with the appropriate legal framework, it provides clear guardrails for innovators to bump up against, while establishing much-needed trust among consumers.

Brazil’s journey towards establishing a regulatory framework for digital assets has been marked by several key recent events, reflecting the country’s progressive approach in integrating these technologies into its financial system.

  • Law No. 14,478: This pivotal law introduced in December’22 set the stage for regulating virtual asset services in Brazil. The law laid out guidelines for the provision of virtual asset services and the regulation of virtual asset service providers. It also made amendments to existing laws to include crimes involving virtual assets and provisions concerning money laundering related to these assets. This law was a significant step in providing a legal structure for the operation of virtual assets in the country [5]​​.

According to Law No. 14,478, a virtual asset is defined as a digital representation of value that can be traded or transferred electronically, and used for payments or investment purposes. This definition was crucial in establishing a legal understanding of what constitutes a virtual asset in the Brazilian context​​.

  • Presidential Decree No. 11,563: This decree, introduced in June’23, further strengthened the regulatory framework established by Law No. 14,478. The decree assigned the Central Bank of Brazil the responsibility to regulate, authorize, and supervise virtual asset service providers. This was a significant move to clarify the roles and responsibilities in the governance of virtual assets [6]​​.
  • Planned Launch of Brazil’s Digital Currency ‘DREX’: The Brazilian Central Bank has scheduled the launch of its digital currency, named DREX, for the end of 2024. This new currency is expected to use distributed ledger technology for settling wholesale interbank transactions, with retail access based on tokenized bank deposits. The announcement of DREX, made on August 7, 2023, underscores Brazil’s commitment to advancing its financial services infrastructure using blockchain technology [7]​​.

These milestones showcase Brazil’s commitment to integrating digital assets into its financial system, balancing innovation with regulatory oversight to foster a secure and efficient digital asset environment [8].

Culture of Innovation

While regulatory clarity offers a green light for experimentation, it does not—on its own— fuel innovation. The market must be willing to use these suggested guidelines to push boundaries. And Brazil has repeatedly demonstrated its appetite for boundary-pushing financial innovations. 

Introduced in late 2020, PIX is a groundbreaking real-time settlement network that has already helped to dramatically increase financial innovation and inclusion in the country. Since its launch, it has been used by roughly 80% of the adult population and 13 million businesses. 

Growing companies like Nubank have also helped advance innovative agendas. With over 85 million active users, this fintech provides users with a safe and verified way to buy and trade cryptocurrencies. 

Environmental factors are also helping to spur the adoption of innovative new financial tools. With many Brazilians living and working abroad, the conditions are ripe for the use of crypto within more cost-effective remittance solutions. And there has been a significant effort to educate people on how crypto works, with upticks in crypto educational seminars and workshops around the country. 

Taken together, this culture of innovation is taking root, with the number of crypto users in Brazil expected to reach 54.6 million by 2027 [9]. Even traditional banks are hopping on board, offering crypto-related investment products and financial assets, and viewing crypto startups as friend instead of foe.

Mature Market Infrastructure

Lastly, the size and maturity of the market in Brazil has been an important accelerator in its growth of crypto adoption. Reshaping traditional systems as digital is impossible if there is no marketplace to support them. 

With a GDP of USD $1.6 trillion, Brazil has the largest economy in South America. It also has a mature capital markets infrastructure. This combination provides the transaction volume and liquidity necessary for widespread adoption of crypto, digital currency, and other tokenized assets

The success of PIX illustrates this potential. In only a few short years, it has grown to reach transaction volumes of USD $2.1 trillion in 2023. This was possible because of the clear need but also because of the same existing underlying market infrastructure that is crucial to the success of digital assets

Global Expansion and Institutional Adoption

Over the coming months and years, Brazil will continue to widen its embrace of crypto and digital assets. A number of its leading banks are already rolling out crypto investment products to their clients, banks and fintechs alike continue to deploy blockchain to enhance their operations, and a pilot of Drex is underway with 14 local and international companies.

This begets the need for safe, secure ways for banks, fintechs and other financial institutions to store those digital assets on behalf of their own investments as well as their customers’. Institutional-grade crypto custody, coupled with progressive regulation are key to propelling global expansion and using this momentum that Brazil has ignited. 

While every country has its own unique goals and needs, Brazil’s use of fintech innovation to advance financial inclusion and establish itself as an emerging crypto hub offers valuable insights for the global community. Like Brazil, those with progressive regulation, a culture of innovation and mature market infrastructure are primed to capitalize on the growth of digital currency and assume a leadership position in the emerging tokenized economy. 

Download Metaco’s Brazil Crypto Report to learn more about how the country and the Brazilian Central Bank are paving a path forward for the adoption and regulation of crypto assets.

[1] https://www.pymnts.com/cryptocurrency/2022/bank-to-bank-digital-currency-poses-threat-to-stablecoin-appeal/

[2] https://www.bloomberg.com/news/articles/2023-09-07/jpmorgan-jpm-explores-blockchain-deposit-token-for-payment-settlement

[3] https://www.ledgerinsights.com/swiss-bank-deposit-token-ubs-credit-suisse-julius-baer/

[4] https://www.statista.com/outlook/fmo/digital-assets/brazil#:~:text=Revenue%20in%20the%20Digital%20Assets,US%241%2C536.0m%20by%202027.

[5] “Brazil: New Decree Defines Competence of Regulatory Body for ….” https://www.loc.gov/item/global-legal-monitor/2023-06-28/brazil-new-decree-defines-competence-of-regulatory-body-for-crypto-assets/?loclr=ealln. Accessed 12 Nov. 2023.

[6] “Brazil: New Decree Defines Competence of Regulatory Body for ….” https://www.loc.gov/item/global-legal-monitor/2023-06-28/brazil-new-decree-defines-competence-of-regulatory-body-for-crypto-assets/?loclr=ealln. Accessed 12 Nov. 2023.

[7] “Brazil central bank names its digital currency ‘DREX … – Reuters.” 7 Aug. 2023, https://www.reuters.com/technology/brazil-central-bank-names-its-digital-currency-drex-scheduled-2024-launch-2023-08-07/. Accessed 12 Nov. 2023.

[8] “New regulation only the first step for crypto assets in Brazil.” 30 Jun. 2023, https://brazilian.report/opinion/2023/06/30/new-regulation-crypto-assets/. Accessed 12 Nov. 2023.

[9] https://www.statista.com/outlook/fmo/digital-assets/cryptocurrencies/brazil#:~:text=Revenue%20is%20expected%20to%20show,to%20US%2414.1%20in%202023.