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In a much-anticipated move, Brazil’s securities regulator, Comissão de Valores Mobiliários [CVM] authorized indirect investment in cryptocurrencies through foreign funds and acquisition of derivatives. The circular ‘guidelines to investment fund managers’ states that investments funds can invest in “other assets” traded in other jurisdictions if they are regulated in those markets.
This effectively means that investment firms can now buy a share in foreign funds, mostly in cryptocurrency portfolios, including Bitcoin [BTC], Ethereum [ETH] and Litecoin [LTC].
The circular released by Brazil’s Ministry of Finance also warned investors of illegal operations in the space. It warns them of frauds, money laundering and other illicit activities, and advocates investment in cryptocurrencies through regulated exchanges.
It stated:
“We call attention to money laundering, unfair practices, conducting fraudulent operations or manipulating prices, among others. An adequate way to address such concerns is investment through exchanges that are subject to oversight by regulators with these concerns.”
Daniel Maeda, Superintendent of Institutional Investor Relations at the CVM, in a previous circular, made it clear that firms cannot directly invest in cryptocurrencies, stating that “they are not financial assets”.
Though the report has its set of guidelines, there are no restrictions on which platform an investor can use to purchase cryptocurrencies, provided they meet the regulatory and legal requirements.
The ministry of finance goes on to warn investors to not fall prey to fraudulent ICOs while purchasing cryptocurrencies and advises them to use a six-factor system to check for scams. The key point in the precaution list is the verification of the cryptocurrency technology, ensuring that it is “transparent, accessible, and verifiable by any user.”
The government also asked investors to check whether the base software is open-source and free, and to check whether the arrangements made could lead to a difference in opinions, conflict of interests, or the concentration of excessive powers on the issuer/promoter of the cryptoassets. The use of aggressive sales techniques, the trading liquidity of the cryptoasset, and the nature of its network and validation protocols, and the software used were also warned against.
The profile of the team of developers, as well as their degree of involvement with the project was a point that was emphasized upon by the circular.
In addition, the government agency has raised concern over the pricing of cryptocurrencies, stating that there is no internationally accepted model for calculating a fair price for the investment.
The Ministry of Finance stated:
“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”
Considered a growing cryptocurrency market, Brazil’s market grew from almost non-existent to worth over $2.5B in 2017. The new move is considered by many enthusiasts as a big step towards global acceptance of cryptocurrencies.