Brazil’s cryptocurrency market is shifting, with stablecoin Tether (USDT) leading the charge, accounting for a staggering 80% of all crypto transactions in the country. USDT’s prominence reflects a broader global trend toward stablecoins. 

Amidst this market evolution, Brazilian authorities are structuring a regulatory framework to ensure transparency and accountability within the burgeoning crypto sector.

USDT dominance in the Brazil Crypto landscape

The appeal of USDT comes from its peg to the US Dollar, offering a sense of stability amid the volatility synonymous with cryptocurrencies like Bitcoin. This year alone, the volume of USDT transactions in Brazil skyrocketed to R$271 billion (~$55 billion), surpassing Bitcoin transactions, which stood at R$151 billion (~$30 billion).

The surge in USDT dominance mirrors a global pattern where stablecoins are carving a significant niche, driven by their utility as a bridge between the crypto realm and traditional fiat currencies. 

Moreover, their predictability makes them a preferred choice for an array of global financial transactions, highlighting their integral role in the crypto portfolios of many investors.

Regulatory response to Stablecoin surge

Brazil USDT Govt regulation

The stablecoin market has also captured the attention of regulatory authorities in Brazil. 

The Receita Federal, Brazil’s revenue service agency, has been at the forefront of monitoring this trend, employing sophisticated tools like Artificial Intelligence and network analysis to track crypto-related activities. 

This scrutiny extends to crypto investments held by Brazilian citizens overseas, underscoring intensive efforts to enhance transparency and accountability in this growing sector.

The legislative arena is also responding to the crypto evolution. A new legislation recognizing cryptocurrencies as “financial assets” has been enacted, paving the way for taxation on cryptocurrency transactions starting from January 2024. 

These regulatory changes aim to instill a sense of legitimacy within the crypto sector, potentially spurring more individuals to delve into cryptocurrency investments.

Impact of Economic Factors

The stablecoin boom in Brazil is intertwined with the country’s economic downtrend. With inflation hitting as high as 10.06% in 2021, the highest since 2015, the stability offered by USDT has become an attractive proposition for individuals seeking to preserve their wealth. 

Unlike acquiring foreign currency, which attracts tax on financial operations (IOF in Portuguese), stablecoins bypass this tax, presenting a more economical and logical option for Brazilians.

Moreover, amid global economic uncertainties and local financial concerns, stablecoins serve as a haven, providing a buffer against extreme market volatilities. The catastrophic crash of the Terra ecosystem in 2022 exemplifies a scenario that propelled many investors towards stablecoins like USDT, which showcased resilience against such market adversities.

Also read Cryptocurrency market crash in 2022: Some of the most bizarre theories about the crash

Does this mean crypto adoption is on the increase?

The trajectory of USDT in Brazil is a testament to a maturing crypto market in the nation. With Brazil ranking ninth globally in digital asset adoption, the upsurge of USDT transactions underscores a growing crypto market poised to elevate Brazil to a vanguard position in the Latin American digital assets and web3 space.

However, as a crypto community, it’s crucial to note that although crypto adoption is increasing, the ones being adopted widely are pegged to the USD. Coincidence? Certainly not. What the adoption in Brazil shows is that it’s more gravitated to the US Dollar than to BTC or ETH – unlike El Salvador, which is fully adopting BTC.

For most Brazilians, this is not so much about the adoption of crypto assets in general but rather about using crypto as a mechanism to acquire USD – or a proxy for USD.

It will be interesting to see how the US Government will respond to Tether’s unregulated disintermediation.

Also read: The World’s Fastest Crypto Adopting Countries.