As a seasoned analyst with extensive experience in the cryptocurrency market and a particular affinity for Brazilian economics, I find the recent proposal by Banco Central do Brasil to ban stablecoin withdrawals to self-custodial wallets a complex yet intriguing development.
Discussing a possible move, Brazil might outlaw withdrawals of stablecoins directly into personal digital wallets, which comes at a time when the Brazilian Real has reached unprecedented peaks compared to the U.S. Dollar.
On November 29th, the Central Bank of Brazil (BCB) suggested a plan to prohibit transactions involving stablecoins such as USDT (Tether’s USD token) from being transferred to personal digital wallets like MetaMask.
The proposal is part of draft regulation and is subject to public consultation until Feb. 28, 2025.
According to the proposal, companies offering virtual asset services are not allowed to move digital assets valued in foreign currencies into personal wallets for safekeeping.
Brazil seeks stricter rules for stablecoin transactions
The suggested limitations mirror the Brazilian administration’s efforts to enhance supervision over the international currency trade and control Brazilian funds overseas.
As per the BCB’s proposal outlined in their consultation paper, the goal is to modify the current resolutions from 2022 that pertain to Virtual Asset Service Providers (VASPs) within the Forex market.
The Brazilian central bank suggested broadening the reach of the foreign exchange market, encompassing actions such as crypto-based payments, sales, storage, and trades that involve foreign currencies.
According to the plan, Virtual Asset Service Providers (VASPs) will need to share certain information with the Bank of Canada (BCB). This information includes verifying their clients, transaction values, and additional relevant details.
Why self-custody?
Unlike cryptocurrency and stablecoin transactions on centralized exchanges that undergo Know Your Customer (KYC) verifications, self-managed wallets don’t demand user data for deposits or withdrawals.
Self-custodial or non-custodial wallets allow users to directly manage their own cryptocurrencies, ensuring full control and responsibility over the assets they possess.
As a crypto investor, I’ve come to understand that some advocates suggest regulatory measures that could potentially restrict the use of self-custodial wallets, but outright banning these wallets entirely seems impossible due to their decentralized nature.
“Brazilian real is collapsing”
BCB’s proposal to limit stablecoin transactions in Brazil comes amid the Brazilian real significantly dropping in value against the US dollar.
Beginning January 1st, the Brazilian Real has suffered a decline of at least 23% in comparison to the U.S. Dollar. The Dollar has reached its highest point ever against the Real, with a value of 6.09 Reals on November 29th, as indicated by data from TradingView.
Many within the cryptocurrency community see Brazil’s proposal to limit stablecoin transactions to personal wallets as being connected or linked.
“They’re closing the exits while BRL is collapsing,” Area Bitcoin co-founder Carol Souza said on X.
Brazil is one of the key stablecoin markets
In response to the decline in the value of the real relative to the dollar, the local community has been progressively safeguarding themselves from the potential devaluation of their local currency by accumulating stablecoins such as USDT.
As a researcher delving into cryptocurrency data, I recently discovered that, according to Chainalysis, Brazil held the second-largest position globally in terms of stablecoin transactions over the past year. Remarkably, these stablecoin transaction volumes represented an impressive 59.8% of Brazil’s entire crypto market, underscoring the country’s significant role in this dynamic digital economy landscape.
Over the course of the last year, Brazil trailed Argentina by only a billion dollars in terms of cryptocurrency investments, with approximately $90 billion flowing into Brazil’s market.
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2024-12-02 15:58