99 Capital x Mercado Bitcoin: Insights on the Brazilian Crypto Market

A conversation with Daniel Cunha of Mercado Bitcoin

Insights on the Brazil Crypto Market 🌎


We held a live webinar with Daniel Cunha recently on innovations and particularities of the Brazil crypto market. Below are notes and key takeaways from our discussion.

Daniel is the Head of Corporate Development at Mercado Bitcoin, the largest local crypto exchange in Brazil. Daniel has over 20 years leading, advising and investing in Tech, across infrastructure, software, commerce, media and fintech.

What makes Brazil particularly interesting for blockchain?

  • Open Banking and Competition: Traditional banks, alongside new entrants like fintechs and digital banks, are now operating on a more even playing field. This has fostered healthy competition, which benefits consumers through better services and rates. Furthermore, this competitive environment has created an urgency for banks to innovate, leading to a faster adoption of blockchain solutions.

    • Banking Penetration and Access: The competition and fee reduction driven by Open Banking have contributed to an even greater increase in the banking of the population, making financial services more accessible.

  • High Tech Adoption: Approximately 10 million Brazilians are engaged in cryptocurrency trading or holding, indicating a robust market for tech adoption and investment. This is 2.5 times the number of Brazilians who own any stocks. (!!)

  • Dynamic Financial Landscape: The fusion of a broad financial system with a surge of new banking service providers is reshaping the financial sector. This creates a competitive yet opportunity-rich environment for fintech investors and founders. They must navigate challenges of differentiation in a crowded market while capitalizing on the potential for innovative solutions and strategic collaborations in this evolving space.

Figure 1: Leading banks in Brazil.

Assets Tokenization

  • Alternative Assets: There is a growing opportunity in alternative assets, such as payment flow tokens, which represent a new avenue for investment.

    • Education: Mercado Bitcoin is focusing on educating retail consumers about alternative assets risks and benefits, aiming to increase comfort and investment in these assets. This approach makes easier distribution of these assets. Thus, they can increase platform volume and offer a broader range of alternative assets.

  • High Interest Rates and Fixed Income Appeal: The high interest rates in Brazil make fixed-income investments particularly attractive, leading to a rising demand for high-yield assets among investors.

    • Asset Fractioning: Institutional and high-net-worth investors have traditionally invested in high-yield assets that were not accessible to retail investors. The fractionalization of these assets on the blockchain allows their distribution in the retail sector.

    • Distribution Focus: Blockchain allows products traditionally restricted to institutional spaces to be offered in retail markets. However, as previously mentioned, it's crucial for investors to be well-educated about the risks associated with these assets.

  • Yield Products: Blockchain is also being used to create yield-generating products based on real-world assets, with a focus on quality and accessibility for investors. Traditional assets are being tokenized, creating a new class of assets.

    • Asset Types:

      • Payment Flows & Credit Receivables: Blockchain assets tied to future payments from lending agreements or credit transactions.

      • Consortium Shares: Tokens representing membership and investment in a pooled resource group for purchasing shared assets.

      • Energy Receivables: Tokens representing entitlement to future payments from energy production or sales.

      • Agribiz Receivables: Blockchain assets linked to future agribusiness revenue streams, like crop sales.

      • Real Estate Receivables: Tokens tied to future cash flow from real estate, such as rent or development profits.

      • MB Startups: Likely tokens representing investment or membership in startup ventures, with rights or interests in the company's growth.

      • Fan Tokens: digital assets that allow sports fan to engage with and influence decisions in their favorite teams, while also offering exclusive rewards and experiences, such as SPFC and VASCO.

Figure 2: Sao Paulo token.

Regulatory Landscape

  • Brazil's Global Alignment: Brazil aligns with major economies like the US and China in terms of economic and crypto-related approaches, showing a diverse interest in various crypto ecosystems including USDC, SOL, Tron, and USDT.

  • Regulatory Preferences: Preference leans towards the US regulatory style for compliance, with an emphasis on being in close alignment with authorities, border regulations, and a comprehensive regulatory framework similar to Europe's focus on KYC and securities laws.

  • Regulatory Advancement in Brazil: Despite not having a full regulatory framework, Brazil is ahead in its central bank digital currency (CBDC), which is called Drex, and has a proactive stance towards comprehensive regulation, positioning it as a leader in the crypto ecosystem.

  • Tax Regulation History: Since 2018, Brazil has actively engaged in crypto tax regulation, providing clear do’s and don'ts, and setting rules that align closely with traditional markets and financial proxies.

Ecosystem Development

  • Ethereum's Dominance: Ethereum remains the most well-known blockchain, widely recognized for its robust platform and widespread use.

  • Emerging Competitors: Other blockchain networks are gaining market share, challenging Ethereum's dominance and developing a robust infrastructure in Brazil. They are building a strong infrastructure within Brazil. Consequently, these networks are better equipped to provide support and assistance to builders focusing on applications targeting the Brazilian market.

    • Solana: Solana announced a US\$10 million fund dedicated to investments in Brazil, indicating its growing focus on the Brazilian market.

    • Stellar: Mercado Bitcoin, a significant player in Brazil, has launched its own stablecoin on the Stellar network, highlighting Stellar's active presence in the region.

    • Polygon: Polygon is also gaining traction and is recognized for its strong performance and capabilities in the blockchain space.

How does a protocol go-to-market in Brazil?

  • Exchanges Exposure: This is the best go-to-market strategy in Brazil, and there are many national and international players who are entering very strongly in Brazil. As for which brokerage to prioritize, this depends on what you need (liquidity, distribution, etc).

    • National Exchanges: Listing on Mercado Bitcoin, the largest centralized exchange in Brazil, could significantly enhance visibility.

    • International CeFi players: Several international crypto exchanges are positioning themselves in Brazil. Currently, Binance holds the largest market share, but Coinbase and OKX are also gaining market share.

  • Timing: Additionally, it is very important for you to position yourself early in the Brazilian market rather than trying to position yourself after it has become larger and more consistent.

Brazil x Argentina

  • Argentina

    • Argentina's Economic Landscape: Argentina, as a labor-intensive country, has a large concentration of activities that could benefit from cryptocurrency usage, especially for numerous payment transactions. Therefore, Argentina is a point of attention for payment solutions with cryptocurrencies and stablecoins.

    • Fragile Currency in Argentina: The inflation and instability of Argentina's currency highlights the meaningful role that stablecoins could play in offering a more stable and reliable medium for transactions.

  • Brazil

    • Electronic Payments in Brazil: Brazil exhibits a strong electronic payment system, making the country less reliant on cryptocurrencies as a means of internal payment.

    • Restrictions on Money Flows: Despite the strength in electronic payments internally, Brazil faces certain restrictions in terms of money flows, indicating a potential area for crypto cross-border solutions.

Figure 3: Leading electronic payment product in Brazil.

Top 3 Opportunities to Watch in Brazil

  • Real World Assets (RWA): Opportunities in infrastructure development, with evolving regulations providing clearer frameworks and greater potential for investment.

  • Cross-Border Payment Solutions: Increasing demand for efficient cross-border payment systems, offering significant growth potential in financial technology.

  • Gaming Industry: A robust and expanding gaming sector, with Brazil being a top market for gaming tokens and related digital assets.