Brazilian Crypto Industry on Brink of Transformation as Firms Exit Due to New Capital Rules

The Brazilian crypto industry is on the verge of a significant transformation due to new capital requirements and auditing procedures imposed by the central bank. Analysts predict that most exchanges and crypto institutions will exit the market, leaving only a few dozen firms with the structure to apply for authorization.

Of an estimated 300 virtual asset service providers (VASPs) currently operating in Brazil, only 20 to 25 are expected to meet the requirements, with just ten obtaining a license. The stringent prudential capital requirements would be a significant roadblock for smaller companies, which would have to hold capital of up to 37.2 million reais, nearly $7.2 million.

Some smaller firms have already exited the market, including Bitnuvem, NovaDAX, Digitra, and Coinext, citing restructuring or end of retail operations. However, capital requirements are not the only compliance issue that crypto firms face in Brazil, as local reports suggest that the whole structure of compliance, including auditing, AML/CTF procedures, constant reporting, and provision of information to the central bank, increases costs and makes it economically unfeasible for smaller players.

Isabel Longhi, director of Public and Regulatory Policies for Latin America at Ripple, stated that this will represent a market correction movement that will restrict innovation in the short term. However, she also noted that consolidation is expected as the Brazilian crypto market matures, saying 'Market downsizing is natural and should happen.'