South America

El Salvador unveils BTC ‘Freedom Visa’ — but it’s 10x the cost of others

The same citizenship-by-investment schemes in nearby Caribbean nations start at $100,000, and one EU country has a citizenship pathway for just over $800,000.

El Salvador has launched a new citizenship-by-investment program that grants a residency visa and pathway to citizenship for 1,000 people willing to stump up a $1 million Bitcoin (BTC) or Tether (USDT) investment in the country.

The Central American country’s price tag for citizenship, however, appears far more expensive than those in neighboring Caribbean countries, which start at $100,000.

El Salvador’s government and stablecoin issuer Tether announced the program on Dec. 7, dubbed the “Adopting El Salvador Freedom Visa Program.”

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Proposed bill in Argentina encourages citizens to reveal crypto holdings

Argentines could soon be motivated with tax incentives to declare their crypto holdings as the government aims to tackle money laundering with a proposed new law.

Argentina’s Ministry of Economy, the country’s economic policy manager, has drafted a bill to encourage Argentines to declare their cryptocurrency holdings, using the inducement of discounted tax rates.

Aimed at combating money laundering, the “Externalization of Argentine Savings” draft law was introduced by economy minister Sergio Massa, according to a Jan. 6 report by local outlet Errepar.

The bill would require crypto holders to produce an affidavit — a sworn statement identifying the whereabouts of their holdings to the government.

The bill proposes tax incentives to encourage citizens to declare their holdings.

Those who voluntarily declare their holdings within 90 days of the law coming into force would pay just a 2.5% tax on the capital gains of their crypto holdings. This tax rate wouincrease incrementally every 90 days until it reaches 15%, the country’s standard capital gains tax rate.

Sergio Massa (right) pictured with Argentine president Alberto Fernández (middle) at the G20 Bali summit in Nov. 2022. Image: Casa Rosada

The bill also aims to encourage Argentines to declare holdings of other financial assets that are subject to capital gains such as fiat currency, shares, stocks, real estate and even furniture.

The proposed law would force both domestic and overseas holdings to be deposited into approved banks either in Argentina or in foreign banks regulated by that jurisdiction’s central bank or securities commission.

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The bill will be tabled and discussed in the next parliamentary session.

Related: Argentina’s province to issue US dollar-pegged stablecoin

Emerging markets are a hotbed for crypto adoption, with Argentina rankin13th overall in the 2022 Global Adoption Index from blockchain data firm Chainalysis.

Argentines have been lured to crypto due to high inflation in the country and its ease of use for cross-border transactions. Argentina’s inflation rate almost hit 72.4% in 2022, according to Statista data.

Brazilian crypto industry gets regulatory clarity amid global uncertainty

The recent regulatory framework from the Brazilian Congress will benefit the country’s financial institutions and bridge local liquidity with global markets.

As the global crypto community is still licking its wounds from the FTX collapse, a liquidity crisis continues to spread around centralized exchanges and decentralized finance (DeFi) alike. 

It is soon to be decided whether the coming regulation triggered by FTX’s bankruptcy will bring a silver lining to crypto.

The Chamber of Deputies of Brazil, the lower house of the country’s federal legislative body, has passed a regulatory framework that legalizes the use of cryptocurrencies as a payment method within the country.

It is estimated that 10 million Brazilians, or about 5% of the population, trade crypto assets.

The largest centralized exchange in Brazil is a local business called Mercado Bitcoin, with roughly three million users. International players like Coinbase or Gemini do not have such a relevant presence in Brazil.

Thus, global bankruptcies like FTX’s have not affected the blockchain market in Brazil as strongly as in the United States or Europe.

Recent regulatory news from Brazil gives a ray of hope as other countries around the world are targeting the cryptocurrency industry without making any distinction between good and bad actors, especially in the U.S. and Europe.

In a blog post titled “Bitcoin’s last stand,” the European Central Bank warned banks against interacting with digital currency as it could taint their reputation, claiming BTC is hardly used for legal transactions and that the regulatory attention it is currently receiving from lawmakers around the world could be “misunderstood as approval.”

The U.S. Commodity Futures Trading Commission (CFTC) continues to aggressively police new digital commodity asset markets. According to a report from the CFTC, a total of 82 enforcement actions were filed in 2022’s fiscal year, imposing $2.5 billion in “restitution, disgorgement and civil monetary penalties either through settlement or litigation.”

Although the framework voted by the Brazilian Congress doesn’t make Bitcoin legal tender as it was achieved in El Salvador, legalizing crypto as a payment method is a positive step toward encouraging local businesses to adopt and transact using crypto.

Salvadoran President Nayib Bukele announced that the country would be implementing a Dollar-cost average trading strategy to accumulate Bitcoin. After buying a large chunk of its Bitcoin reserves at market heights, El Salvador currently finds most of its crypto investment to be underwater.

Current crypto landscape in Brazil 

Brazil has been steadily preparing for the regulation of tokenized assets and the current administration has taken a positive stance on financial innovation for the last couple of years, but no one was expecting it to be voted on so suddenly.

The Brazilian Securities and Exchange Commission is pursuing changes in the country’s legal framework concerning its regulation of cryptocurrencies. In 2021, the securities regulator approved a sandbox structure for the testing of blockchain companies and solutions.

The Central Bank of Brazil also shared its objectives to create the country’s sovereign digital currency pilot before the end of the year.

Recent: FTX collapse won’t impact everyday use of crypto in Brazil: Transfero CEO

Luis Felipe Adaime, CEO of Moss.earth — a Brazilian climate tech that develops blockchain-based solutions to help companies offset carbon — told Cointelegraph:

“The Central Bank innovated massively in 2020 with the ‘PIX,’, an electronic instant payment method that has gained wide acceptance in the country. Considering the success it’s had so far I would imagine that the next natural step would be to have the ‘PIX’ on-chain.” 

Brazil’s legal framework states that the central bank will determine the rules, and a license will be required for any firm that exchanges fiat for crypto or offers crypto custody and crypto-related products. 

“Licence requirements will limit who can participate and run these kinds of operations, the process of approval by the central bank might constrain the market.” Thiago César, the CEO of fiat on-ramp provider Transfero Group, told Cointelegraph, adding, “There is no reason why the president will not sanction this law, this is the final step and he will probably do it as there is big pressure from the central bank to accept the legal framework.”

The current president of Brazil, Jair Bolsonaro, has relied on the Ministry of Economy and the advice of technical nominees for such complex economic decisions and is likely to approve the framework before leaving office on Jan. 1, 2023.

A clear regulatory framework will bring more legal certainty for some institutional players to participate but by no means was Brazil hindered in terms of innovation within this field.

Banks and financial institutions might venture into new product offerings such as credit lending with crypto and maybe even crypto remittances with this new regulated environment in Brazil. Three major banks in Brazil were already offering crypto-related products before Brazil’s Congress passed the bill.

Who is set to benefit the most from this new regulation?

Despite GDP stagnation in the past two decades, Brazil has had a relatively benign low-inflation scenario — especially when compared to neighboring Argentina and Venezuela — and has implemented significant financial innovation in recent years.

Positive regulation might allow listed funds and publicly traded instruments to purchase their crypto locally instead of going outside of the country.

Investment funds in Brazil are only allowed to buy crypto assets on regulated exchanges. This created a scenario in the past, where a fund that wanted to allocate part of its investments in crypto had to resort to international exchanges that were regulated in a different jurisdiction.

Anything that bridges liquidity between multiple jurisdictions and Brazil is a very interesting opportunity. An international investor would face a less complicated bureaucratic process and local businesses could access more capital.

“I believe Brazilians have benefitted strongly from financial and tech innovation like the rise of fintech and the adoption of blockchain, with wider access to cheaper credit, growing investments and trading in crypto,” Adaime stated.

DeFi initiatives involving Brazilian stablecoins like the Celo Brazilian real (cREAL) and the Brazilian Digital Token (BRZ) are making foreign direct investment easier by enabling international stablecoin holders to fund local small and medium enterprises.

Related: Luiz Inácio Lula da Silva wins Brazil’s presidential race — What does this mean for crypto?

Brazil is a very financially secluded market from the rest of the world due to the restrictive nature of its local currency. “The only currency that can be used in Brazil is the Brazilian real so there are no USD purchases or foreign currency bank accounts. This makes the local currency quite strong.” Cesar added:

“Naturally, local players are expecting regulators to be tough on international players so that they have a better fighting chance.”

International exchanges in Brazil such as Binance, ByBit and Crypto.com were expanding fast and storming the market with better product offerings, more liquidity and books that are more liquid and globally integrated.

A group of local exchanges has been vocal about international exchanges operating in Brazil without any type of regulation. Those local exchanges played a big part in pushing the vote by Congress to happen as soon as possible.

Sam Bankman-Fried denies rumors that he fled to Argentina

SBF stepped down as CEO of FTX on Nov. 11 after initiating Chapter 11 bankruptcy proceedings in the District of Delaware.

FTX founder Sam Bankman-Fried has denied speculation that he’s fled to Argentina as the saga surrounding his collapsed cryptocurrency exchange continued to unfold in near-real time on Twitter. 

In a text message to Reuters on Nov. 12, Bankman-Fried, who also goes by SBF, said he was still in The Bahamas. When Reuters asked him specifically whether he had flown to Argentina, as the rumors suggest, he responded: “Nope.”

Users took to Twitter over the weekend to speculate whether SBF was on the run after filing for Chapter 11 bankruptcy for FTX Group, which includes a slew of companies such as FTX Trading, FTX US and Alameda Research. The rumors started after users tracked the coordinates of his private jet using the flight tracking website ADS-B Exchange. The tracker suggested that SBF’s Gulfstream G450 had landed in Buenos Aires on a direct flight from Nassau, Bahamas, in the early hours of Nov. 12.

Bankman-Fried lives in a luxury penthouse in Nassau that’s reportedly shared by several roommates, including Caroline Ellison, the CEO of Alameda Research.

Once considered to be the poster child for crypto’s exponential growth, SBF is now at the center of the industry’s biggest scandal. In less than a week, FTX went from one of the world’s largest cryptocurrency exchanges with a valuation of roughly $32 billion to a bankrupt firm with an $8 billion hole in its balance sheet. According to Bloomberg, SBF’s net worth plunged from $16 billion to zero after FTX’s collapse.

Related: Binance CEO CZ on FTX crash: “We’ve been set back a few years”

FTX raised billions in venture capital over the past few years, touting backers such as Lightspeed Venture Partners, Ontario Teachers’ Pension Plan, Circle Internet Financial, Coinbase Ventures, Multicoin Capital, Paul Tudor Jones and Sequoia Capital. 

El Salvador’s pro-Bitcoin president Nayib Bukele announces reelection bid

Bukele says that despite past laws that prohibited the reelection of presidents, El Salvador can follow in the footsteps of developing nations.

In an Independence Day live streaming event on Sept. 15, El Salvador President Nayib Bukele announced his bid for reelection after his current term ends in 2024.

Bukele’s announcement comes even though past presidents in El Salvador were prohibited by law from having consecutive terms in office. The president highlighted that:

“Developed countries have reelection, and thanks to the new configuration of the democratic institution of our country, now El Salvador will too.”

Overall, Bukele shows signs of solid support, as a CID Gallup poll conducted last month revealed an 85% approval rating of his presidency and 95% approval of his governance in security matters.

However, in light of the announcement El Salvadorians took to the streets in protest. Thousands of protestors pushed back against Bukele’s corruption and the integration of Bitcoin, among other matters found disagreeable during his presidency.

During his presidency, Bukele introduced Bitcoin as a legal tender in the country back in September 2021. The introduction of the largest cryptocurrency in the country recently hit its one-year anniversary, after a year of steady price declines.

Despite introducing Bitcoin-centric educational programs such as “Mi Primera Bitcoin” — my first bitcoin — and being an example to neighboring countries like Columbia and Venezuela, the local population is not as keen on crypto as expected.

Related: El Salvador ‘has not had any losses’ due to Bitcoin price dive, Finance Minister says

A national survey from February of this year showed that 20% of the population actively used the Chivo Wallet, El Salvador’s preferred crypto wallet, for Bitcoin transitions. Otherwise, more than double the number downloaded for the initial free gift of $30.

Only 20% of polled business owners said they accept crypto payments. Most of the businesses doing so were larger enterprises rather than small-scale shops.

On the other hand, the adoption of Bitcoin as a legal tender has introduced a new type of crypto-tourist to the country, despite the bear market. According to official numbers, local tourism was up by 82.8% just this year.

Critics continue to go back and forth on the topic of El Salvador’s usage and adoption of Bitcoin. Thousands may be protesting on the street against the policies surrounding digital currency. However, some still see it as technological and financial advancement for a developing country like El Salvador.

Brazilian central banker describes how CBDC system can halt bank runs

In constructing its Real Digital, Brazil’s central bank is developing mechanisms that can freeze citizens’ conversion to CBDCs in the event of a bank run.

In a paper recently published by the Bank for International Settlements (BIS), Fabio Araujo, an economist at the Central Bank of Brazil (CBB) who is also responsible for the country’s central bank digital currency work, revealed that the monetary authority will have greater control over the population’s money once its CBDC is rolled out. Through the so-called Real Digital, the central bank will be able to halt bank runs and impose other restrictions on citizens’ access to money. 

Real Digital, the digital version of Brazil’s national currency, has been debated at the central bank since 2015 and will have its first tests in 2023 through nine solutions presented by private companies during the recent Lift Challenge event that was carried out by the CBB.

Cointelegraph reported that the value of the upcoming CBDC would be pegged against the national fiat payment system STR, also known as the Reserve Transfer System.

Through Real Digital, the central bank says it wants to enable so-called smart payments within a regulated environment. Smart payments include smart contracts, transactions with Internet of Things devices and even decentralized finance (DeFi) applications.

In the BIS document, Araujo said the main objective of introducing a CBDC is to provide entrepreneurs with a safe and reliable environment in which to innovate through the use of programmability technologies that make smart payments a reality.

“Technologies available for smart payments, as seen in crypto assets, make room for new business models and are better suited to meet the population’s demand,” he said.

Related: Fed paper looks at the potential effects of CBDC on monetary policy

Central Bank may ‘stop’ withdrawals

In the paper, Araujo highlights that the central bank must maintain a partnership with the private sector in providing liquidity to the market. According to Araujo, the central bank envisions the coexistence between the Real Digital and private money issued by institutions regulated by the CBB in the intended smart payments.

Therefore, individuals could convert their deposits into tokens capable of accessing the services provided on this new platform, under a commitment that these tokens will be converted into Real Digital. In other words, banks will be able to issue their own tokens aimed at smart contract applications having their balance in Real Digital as a guarantor of the operations.

“Commercial bank deposit tokens would inherit all the regulations and characteristics of their parent assets, such as fractional reserve requirements,” he said. “Likewise, [payment service provider] deposit tokens would inherit their characteristics, such as total reserve requirements.”

However, unlike the cryptocurrency ecosystem in which users own their assets and no one can lock their operations, there will be a system to lock withdrawals in Brazil’s CBDC.

Araujo points out that, at a given time and for various reasons, there may be a bank run where users wish to convert these tokens into the Real Digital, which would be guaranteed by the central bank. To avoid such bank runs, the CBB already provides “backstops and restrictions on the conversion flow to and from CBDCs.”

The central bank points out that the flow of exchange of these tokens to Real Digital would have a limit and would even need to be scheduled in advance. In other words, the central bank will have the power to control the flow of money within the system.

Related: Brazil Stock Exchange wants to provide oracles for Real Digital

The paper explains:

“One source of concerns, though, is the speed at which private tokens could be converted into CBDCs, which could restore coordination mechanisms. To avoid such undesirable flows, large conversions could only be available if scheduled in advance and constraints on daily conversions could be set. In addition to that, circuit breaker mechanisms could be automatically applicable when the continued draining of tokens from any specific institution would render it vulnerable.”

Araujo concludes the document by pointing out that Real Digital, by enabling smart contract and programmable money solutions in Brazil’s financial environment, will allow the creation of customized financial services to meet the different demands of society.

The paper concludes that these resources, when combined with financial education, can provide efficiency gains and serve the entire population of the country, even those who are still on the margins of the financial system.