Brazilian Report

Cryptocurrencies become a hedge against instability in Latin America

Publicado em 08 janeiro 2021

Por Natália Scalzaretto

You’re reading The Brazilian Report’s weekly tech roundup, a digest of the most important news on technology and innovation in Brazil. This week’s topics: the boom of cryptocurrencies, new regulations for crowdfunding investments in Brazil, and N26’s planned arrival in the country.

The news that the price of bitcoin topped the USD 40,000 mark has rekindled investors’ interest in cryptocurrencies around the world. And in Latin America, investors’ drive is not only motivated by potentially lofty profits. A recent report by public relations agency Sherlock Communications shows that Latin American investors see crypto as a hedge against inflation and currency devaluation.

Reasons to invest. Sherlock conducted a survey with 2,200 people in Argentina, Brazil, Colombia, and Mexico. Three-quarters said the coronavirus crisis piqued their interest in cryptocurrency.

- In all countries surveyed, the main reason for this is to provide protection for assets against instability. That is particularly the case in Argentina, where annual inflation rose to 30 percent by November and the Argentine Peso crashed 42 percent in 2020.

- Over half of Brazilians see cryptocurrencies as a way to diversify their portfolio, while one-third of Colombians regard them as a better tool for sending money overseas.

Dipping one’s feet. While over 85 percent of surveyed investors say they are familiar with bitcoin and other cryptocurrencies, they still invest very little in it. Most had no more than USD 100 worth of cryptocurrencies.

- In Brazil, 37 percent say they did not make transactions with cryptocurrencies in 2020. Still, data from the Federal Revenue Service obtained by The Brazilian Report shows that cryptocurrency transactions in Brazil amounted to USD 101.5 billion between August 2019 and July 2020. The country reportedly makes up for only 1 percent of the global market.

- Most Latin Americans believe their countries’ crypto scene is lagging in terms of technology, with Colombia being the most optimistic about future progress.

- The survey also suggests that having more reliable, easy-to-use platforms to invest in such assets could make investors feel safer. Moreover, some 40 percent would like to get more information on the subject.

With interest rates plummeting, investors sought profit through alternative investment options in 2020. Among them, one has caught the eye of the Brazilian Securities Commission (CVM): crowdfunding investments. In this modality, companies launch crowdsourcing campaigns and give supporters equity in return. Per CVM, 60 such offers raised BRL 59 million in 2019, a 28-percent growth from the previous year.

The regulator is now giving it a closer look as part of its agenda of public hearings for 2021. The move, investors say, could provide more legal security and strengthen the industry.

What is on the table. Throughout its public hearing — which is expected to be finished this year — CVM suggested market players to:

- Increase the maximum amount of money that can be raised in crowdfunding from BRL 5 million to BRL 10 million;

- Allow companies with up to BRL 30 million in yearly revenues to crowdfund;

- Double the maximum amount an investor can apply in crowdfunding to BRL 20,000 (to surpass this amount, they must have a yearly income superior to BRL 200,000);

- Expand advertising possibilities to any website, not only established crowdfunding platforms (as long as the ad redirects the user to the website where they will find all the information about the offer);

- Record securities to give investors more peace of mind;

- Establish a minimum of BRL 200,000 in equity capital for crowdfunding companies to operate (twice the current amount, to make sure they can afford the necessary structure).

Impacts. Felipe Souto, CEO of crowdfunding platform Bloxs, believes that increasing the limits will help to “attract more developed companies and projects to this mode of fundraising,” helping the ecosystem to develop in an efficient way.

- Among the regulatory advances, he told The Brazilian Report that recording the assets could help spur a secondary market for these companies’ bonds. Coupled with clearer rules and more possibilities to advertise, he says, it will be easier for investors to discover serious investment opportunities.

Germany’s most famous fintech N26 is ready to launch in Brazil. The company got the nod from the Central Bank to operate in the country late in December, after years of rumors that it would make its Latin American debut in Brazil.

- The move marks a reboot of N26’s expansion plans. After the pandemic struck, the bank concentrated on its main markets — Germany, Italy, France, and Spain — and left the United Kingdom in the wake of the Brexit process.

What do we know so far? Per legal filings, N26 will be headquartered in São Paulo, with an initial equity capital of BRL 2 million. However, there are no deadlines for when operations will effectively begin. Users in Brazil are being redirected to a waiting list, where they can submit their email to receive early updates on N26 news.

What will N26 find in Brazil? Brazilians appear to be even more eager for digital banking services since the beginning of the coronavirus pandemic. A survey commissioned by Akamai Technologies shows that, on average, 43 percent of them have a digital account, a rate more than twice as big as in 2019. Fourteen percent of interviewees said their principal bank account was with a fintech.

- In a country so heavily targeted by hackers, security is the main sticking point for users, as 57 percent of them check if the bank has suffered data breaches before opening an account.

- This could be a warning for N26 before implementing features such as Spaces — a form of shared account — in Brazil.

Competition. 2020 was a pivotal year for Brazil’s financial system, with the launch of instant payment system PIX. As Brazil’s open banking environment is set to launch this year, alongside WhatsApp Pay, N26 is poised to find a very competitive field.

- Some features offered by N26 are coming to the attention of domestic fintechs. In December, Nubank began its foray into insurance with its own life insurance plans, while fintech Nomad — which specialized in allowing Brazilians to open accounts in the U.S. — fundraised BRL 30 million. With the money, they aim to launch a debit card for shopping and withdrawals in the U.S., an investment wallet, and expand to other countries.

- An old acquaintance of N26’s, fintech Revolut, is also gathering emails for a waiting list in Brazil. It is unclear, however, how advanced they are in their launch process.

- Unicorn. Home decor e-commerce MadeiraMadeira became Brazil’s newest unicorn after raising USD 190 million in an investment round led by Japan’s Softbank and private asset management firm Dynamo. The marketplace, which sells furniture and construction materials, saw sales jump by 120 percent last year, as home renovations became a trend for self-isolating Brazilians.

- Digital documents. From January 4 on, every vehicle registered in the state of São Paulo will have digital documents, according to a new resolution by the state traffic department Detran-SP. Drivers can access their vehicles’ certificates and licenses straight from an app.

- R&D. São Paulo’s governor signed a decree to beef up the budgets of state universities and research foundation Fapesp with an extra BRL 1.1 billion. Fapesp’s funds had been slashed by 30 percent in December, to BRL 1 billion, amid the state fiscal adjustment package that led to BRL 7 billion in savings.

- Media. Ibope, Brazil’s main think-tank for the publishing industry, adjusted its methodology to measure TV viewing figures. Measurements of television audiences are expressed in “points,” representing a certain number of households. In 2021, each point in Greater São Paulo will represent 76,577 homes, or roughly 205,377 people.

- Hacking. Cybersecurity company CheckPoint found that Brazil’s health sector was the fifth most targeted by hacks in the world, with a 66 percent increase in attempts in the last two months of 2020. By region, Latin America ranked third, with a 112 percent increase in hacks in the health sector versus 2019. CheckPoint notes that ransomware is the biggest threat at the moment and, given the desperate situation of hospitals, criminals believe they are more likely to have their demands met.[/restricted]

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Before joining The Brazilian Report, she worked as an editor for Trading News, the information division from the TradersClub investor community.

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