Investment in crypto assets rises in Brazil, but does not yet set off a Central Bank alert

From January to August, the volume invested by Brazilians in these crypto assets reached $4.3 billion. IMF warns of risk in emerging markets and advises prioritizing digital currencies issued by central banks

Image: REUTERS/Benoit Tessier/Illustration
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The resources allocated by Brazilians in crypto assets abroad jumped 145% in 2021. This increase has been closely monitored by Brazil‘s Central Bank, but without triggering any internal alert, according to two government sources.

Despite the fact that the International Monetary Fund (IMF) has warned about the risks associated with the increase of this flow in emerging markets, the Central Bank evaluates that in Brazil the issue does not represent a concern.

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From January to August, the volume invested by Brazilians in these crypto assets reached $4.3 billion, compared to $1.7 billion in the same period last year and $1.7 billion in the same period of 2019. The volume invested in 2021 represents 36.8 percent of the total stock already historically allocated by Brazilians in crypto assets: $11.7 billion since 2016.

Bruno Serra, monetary policy director at the Brazilian Central Bank, recently recognized that the increase in investments was significant. However, a source at the institution said that the regulator’s monitoring is more out of curiosity than risk at this point.

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“(Volume invested) is too low to generate any problem,” he said.

Last week, the IMF issued a warning on the matter in its Global Financial Stability Report, pointing out that the increase in crypto trading in emerging markets could potentially lead to destabilizing capital flows and to accelerating dollarization.

Emerging markets and developing economies facing these risks need to prioritize macro policies and consider the benefits of digital currencies issued by central banks.

IMF at Global Financial Stability Report

A second government source pointed out that in Brazil there is no large volume invested in crypto assets, but “some allocation” made by agents betting on their appreciation and that, while the Central Bank is indeed engaged in a digital currency project, this has nothing to do with the advancement of crypto assets trade.

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The IMF recommendation assumes that people use cryptocurrencies because they are looking for some kind of digital currency to make digital payments, and in the absence of a government-issued digital currency, they turn to cryptocurrencies.

“This is very far from reality. In Brazil, we have a good part of the payments already in digital form. What people are looking for in cryptocurrencies is an investment with high risk, but also with a high probability of return,” said the source.

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The euphoria with crypto in Brazil is due to a rocketing valuation of this asset: in 2021, bitcoin accumulates a high of 114%, after rising 304% last year.

On Friday, Central Bank’s Serra, classified the increase in investments by Brazilians in crypto as a quest by investors to diversify their portfolio.

(Translated by LABS)

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