While Latin America accounts for just 7.3% of global cryptocurrency transaction value (Chainalysis, 2023), its grassroots adoption defies its regional footprint. Three Latin American countries rank among the top 20 in Chainalysis’ 2023 Global Crypto Adoption Index – Brazil (9th), Argentina (15th), and Mexico (16th) – with Brazil alone generating $85.4 billion in on-chain value received between July 2022 and June 2023.
Cryptocurrency adoption in Latin America is often framed as a response to economic instability: weak currencies, inflation, and restricted access to global reserves like the U.S. dollar. Brazil, however, defies simplistic narratives. While its citizens undoubtedly leverage crypto to hedge against regional volatility – 10% of adults hold digital assets, surpassing stock market participation, revealing a more complex reality.
In Brazil, cryptocurrency transcends its role as a financial lifeline, emerging as a bridge to modernization. Despite recent economic strides—including inflation stabilizing at 4.1% in early 2024 and a currency outperforming regional peers—the $85.4 billion in on-chain value recorded between 2022 and 2023 reflects a market driven by duality. Chainalysis data reveals stablecoins dominate 59.8% of transactions (a hedge against historical distrust in institutions), while Bitcoin, Ethereum, and altcoins comprise 40.2%, with altcoin adoption rates mirroring those of North America.
This positions Brazil uniquely: crypto acts as both a shield for citizens wary of past volatility and a spear for enterprises building decentralized finance (DeFi) protocols and Web3 infrastructure—a complexity that defies regional narratives of crypto as merely a crisis response.
The Brazilian virtual assets market is going through a pivotal moment, driven by increasing institutionalization, growing popular adoption, and a rapidly evolving technological innovation ecosystem. At the same time, it faces increasingly complex regulatory challenges, including the harmonization of rules, legal certainty for transactions, and the establishment of clear guidelines for companies and users.
On June 19, 2023, Law No. 14.478/2022, known as the Legal Framework for Cryptoassets, came into force. While it marks a milestone as Brazil’s first crypto-specific legislation, its practical impact remains constrained. The law is classified as a norm of limited efficacy under Brazilian constitutional theory – a term coined by scholar José Afonso da Silva to describe legislation that cannot function fully without complementary regulations.
By merely defining broad terms like ‘virtual assets’ and ‘virtual asset service providers’ (VASPs), and delegating authority to the Central Bank and securities regulator (CVM) to draft implementing rules, the framework fails to address critical operational aspects of the sector. Key issues – such as custody standards, stablecoin issuance criteria, and anti- money laundering protocols – remain in limbo, dependent on future regulatory acts that lack a clear timeline.
This legislative half-measure creates a paradoxical scenario: a law exists, but its real- world application is postponed indefinitely.
In addition, the law delegated regulatory authority to the Central Bank—designated as the primary regulator by Decree No. 11.563/2023—and to the CVM, assigning them the responsibility for issuing complementary regulation. For this reason, the Legal Framework constitutes a norm of limited effectiveness, as classified by constitutional scholar José Afonso da Silva, since its full applicability depends on the issuance of secondary regulations by the competent regulatory bodies.
As such, the law has no immediate practical effect on essential sectoral matters, such as specific rules for custody, operational requirements for exchanges, criteria for the issuance and circulation of stablecoins, mechanisms for preventing financial crimes, and governance and compliance requirements. This creates legal uncertainty and hampers market adaptation, given the lack of clarity on future regulatory norms, which remain without a defined timeline for publication.
In this context, the current legislative landscape is marked by the proliferation of simultaneous legislative initiatives, notably Bill No. 4.308/2024, proposed by Congressman Aureo Ribeiro, which aims to regulate the stablecoin market specifically (Differs from the U.S. GENIUS Act by adopting a criminal approach to the unauthorized issuance of stablecoins, treating it as a financial crime under Brazilian law); Bill No. 2.681/2022, authored by Senator Soraya Thronicke, which seeks to regulate the issuance, intermediation, custody, and settlement of virtual assets to protect investors and prevent fraud (Raises concerns over granting regulatory powers to private associations within the crypto sector itself, risking conflicts of interest, exclusion of smaller players, and market distortion); and the draft bill presented by Congressman Lafayette de Andrada, which proposes a broad and detailed approach to cryptoasset regulation in Brazil.
This legislative multiplicity, while reflecting the noble intent of lawmakers to provide legal certainty and curb illicit acts, raises concerns about compliance with Article 7, item IV, of Complementary Law No. 95/1998, which states that “the same subject matter may not be regulated by more than one law, except when the latter aims to complement a basic law and is expressly linked to it by reference.”
In practical terms, the overlapping of regulations resulting from legislative proliferation undermines legal certainty by creating a fragmented normative framework marked by interpretive conflicts and regulatory redundancies. This hinders the uniform application of the law, expands the scope for hermeneutic controversies, and imposes obstacles to the predictability of legal relationships—ultimately affecting the stability of the sector.
From a business perspective, the absence of a cohesive regulatory framework not only leads to high operational costs and increased regulatory complexity but also stifles the performance of market participants. The need to adapt to often contradictory or hard-to- harmonize rules discourages investment, inhibits long-term planning and efficient capital allocation, and renders the market unstable and inefficient.
Regulatory uncertainty also has a paralyzing effect on innovation and technological development. Companies operating with virtual assets—such as exchanges, tokenization platforms, decentralized protocol developers, and OTC desks—are limited in the creation and offering of new products and services due to the lack of clear legal compliance guidelines, which also creates additional barriers to the integration of the crypto sector into the formal economy.
For individuals, regulatory uncertainty has concrete effects on the everyday use of virtual assets. In this regard, the lack of clear rules on transactions, taxation, user protection, and interoperability between virtual assets and fiat currency undermines predictability and may lead to arbitrary restrictions on the legitimate use of these technologies.
Amidst this uncertainty, Brazil’s institutional crypto ambitions press forward. The Central Bank’s Drex CBDC, currently in pilot phase, promises to streamline B2B transactions through programmable money and tokenized assets. However, critics warn that Drex’s design risks enabling state overreach: its smart contract functionality could allow the government to program expiration dates on digital funds or restrict how CBDCs are spent (PEC 31/2023, Deputy Júlia Zanatta). Meanwhile, a controversial legislative proposal to allocate 1% of Brazil’s $370B foreign reserves to Bitcoin – positioning the country alongside El Salvador in the nation-state crypto race – has sparked debates about volatility and regulatory hypocrisy.
This duality reveals a stark imbalance: While individuals grapple with fragmented rules, institutions pursue high-stakes projects that prioritize control (Drex) or geopolitical signaling (Bitcoin reserves) over user empowerment. For foreign investors, this creates a paradox: Brazil offers a $35B/year crypto economy ripe with institutional partnerships, but everyday users remain vulnerable to regulatory whiplash and persistent uncertainty in the gray zone we still navigate.
As long as the regulatory framework remains disorganized and scattered, Brazil runs the risk of losing global competitiveness in the virtual asset industry, discouraging strategic investments and hindering the widespread adoption of these technologies. The legal uncertainty resulting from overlapping regulations not only disincentivizes innovation and sector expansion but also poses barriers to the development of new business models and the integration of such assets into the formal economy.
In this sense, building a secure and functional regulatory environment requires a technical, transparent, and inclusive legislative process—one in which the private sector, subject-matter experts, and civil society are heard through public hearings, regulatory consultations, and institutional debates. Only a coherent regulatory framework aligned with market needs can ensure legal certainty, user protection, and the promotion of innovation, enabling virtual assets to play their transformative role without unnecessary barriers.
