The Classification of Cryptocurrencies Under Brazilian Law

Brazil has been a fertile environment for the crypto and virtual assets industry. Until 2023, there was no specific regulatory framework applicable to activities within this industry and, consequently, businesses operating with crypto and virtual assets were generally subject to the legal regimen applicable to any assets, pursuant to the Brazilian Civil Code.

This scenario changed as from December 2022, when congressional action resulted in the enactment of Law No 14,478/22, the so-called Brazilian Virtual Assets Law. Law No 14,478/22 only came into force in June 2023 and ancillary regulation is expected to be published by the Central Bank of Brazil (BACEN) by the end of 2023. Nevertheless, the unprecedented move by Brazil’s Congress has already reverberated, locally and abroad, through the several business cases that pop up daily in this industry.

The Brazilian Virtual Assets Law was a result of intense discussions between local and international representatives from the several industries involved with crypto-assets services and transactions, government, regulatory agencies, academics, and practitioners for about seven years. The result of these discussions, as often happens in any new legal framework, is not perfect but is an invaluable step towards creating increased legal certainty for transactions with virtual assets in Brazil or involving residents of Brazil.

As opposed to what was seen in certain other jurisdictions, the decision to regulate the matter and appoint a regulator for the industry was not imposed by the authorities, but largely advocated by industry players.
Since the early stages of crypto-activities in Brazil regulators have been taking a conscious and receptive approach to any discussions involving the subject. With the increase in the use of and transactions with virtual assets in 2016–19, both BACEN and the Brazilian Securities Commission (CVM) released communications to the market stating their position regarding virtual currencies businesses, considering the Brazilian laws and regulatory framework in force at the time. Both regulatory agencies closely followed the development of the virtual assets market and the intersections that it might have with banking or capital markets regulations.

Taking an obvious regulatory choice, Presidential Decree No 11,563/23 attributed powers to BACEN as the key regulatory agency in charge of issuing ancillary regulations and performing supervisory activities involving the virtual assets subject to Law No 14,478/22 and respective services involving such assets.

BACEN’s positive approach towards innovation over the last few years, including when dealing with digitalisation of financial services, open banking, and instant payments, resulted in an enthusiastic reaction from the markets upon its appointment as the regulatory agency in charge of regulating and supervising virtual assets activities.
BACEN’s jurisdiction, though, is not unrestricted. BACEN made it clear from early stages that virtual assets are not considered currency in Brazil. This remains true under the Brazilian Virtual Assets Law, which expressly excludes any tokenised currency and any virtual assets issued by Central Banks (the so-called Central Bank Digital Currencies or CBDCs) from the definition of virtual assets subject to Law No 14,478/22.

The definition of virtual assets is, in fact, the motor for identifying which virtual asset is subject to Law No 14,478/22. Cryptocurrencies, such as Bitcoin, Ether, Litecoin and Dogecoin stand out among the virtual assets that are included in such definition and, therefore, will be subject to BACEN’s jurisdiction. Such definition also excludes any virtual assets that classify as a security (valor mobiliário) pursuant to Brazilian securities laws and regulations, which remain under the regulatory jurisdiction and scrutiny of CVM.

Even though virtual assets that classify as securities are not subject to the Brazilian Virtual Assets Law, between 2022 and mid-2023, the CVM also joined the regulatory wave involving virtual assets in Brazil. It published a set of regulatory guidance and regulations for the market on types of virtual assets that may classify as securities, particularly regarding the characterisation of “tokens of receivables” or “fixed income tokens” as securities and clarified the possibility of carrying out simplified public offerings involving those tokens by following the regimen created for crowdfunding offerings under CVM Resolution No 88/2022.

Both BACEN and CVM have already announced to the market their intention to publish ancillary regulations for public comments at any moment. Nevertheless, until such regulations are enacted and come into force, only the principles and certain rules related to consumer defence and criminal law set forth in the Brazilian Virtual Assets Law are enforceable.

Notwithstanding this transitional period for the full enforceability of Law No 14,478/22, one may already feel the thrill this new legal framework is bringing, as players of the industry have already started preparing for carrying out businesses in a new (regulated) environment. It is undoubtedly a prosperous moment for the virtual assets industry in Brazil.