Brazil’s securities regulator, Comissão de Valores Mobiliários (CVM), has reportedly authorized investment funds to indirectly put their money in the cryptocurrency ecosystem, through the acquisition of derivatives and foreign funds.
According to a circular issued by the Finance Ministry of Brazil, first spotted by local news outlet Portal do bitcoin, funds can also invest in “other assets” traded in other jurisdictions, as long as these are regulated where they’re traded.
Per the news outlet, this means investment funds can now purchase share in a foreign fund whose portfolio consists mainly of cryptocurrencies like bitcoin, ethereum, and litecoin.
The Ministry of Finance’s circular points out there’s room for fraud. Money laundering or other illicit activities exist in the space and, as such, funds should invest in cryptocurrency products through regulated exchanges. These platforms, it adds, should be subjected to “the supervision of regulatory agencies that have powers to restrain such illegal practices.”
It further claims funds should take certain precautions before purchasing cryptocurrencies to avoid buying tokens issued by fraudulent ICOs. The circular points out six basic precautions, which include verifying whether their technology is “transparent, accessible, and verifiable by any user,” and whether the token has sufficient liquidity.
Interestingly, it also says that funds should check “whether there are arrangements that raise conflicts of interest or the concentration of excessive powers on the issuer or promoter of the cryptoasset, or the use of aggressive sales techniques.”
The government organization’s document adds it may be hard to assess the “right price” for each cryptoasset. It reads:
“One possible parameter, in this sense, is the investment in cryptoassets that contain the permanent disclosure of globally recognized price indices prepared by independent third parties.”
In a previous circular, the superintendent of institutional investor relations at CVM, Daniel Maeda, made it clear investment funds aren’t allowed to directly invest in cryptocurrencies. Investment funds that put their money in the cryptocurrency ecosystem, per the CVM, will also have to make it clear how they’ll approach hard forks and airdrops.
Notably, the Brazilian government has increasingly been supporting crypto-related businesses, at a time in which Grupo XP, the largest independent brokerage in Brazil, revealed it plans to launch a bitcoin and ethereum trading platform by the end of this year.
Brazil’s antitrust watchdog, the Administrative Council for Economic Defense (CADE), has also launched an investigation into whether banks are purposefully harming cryptocurrency exchanges in the country by restricting their operations.
Despite the government’s seemingly pro-cryptocurrency attitude, it also earlier this year sent local cryptocurrency exchanges a 14-point questionnaire to learn more about their businesses and study their potential use in money laundering.
Editor’s note: Some statements in this article have been translated from Spanish.
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Last modified: May 20, 2020 5:18 PM UTC