Law 14,478/22, also known as the “Crypto-assets Law” or “Legal Framework of Crypto-assets”, inaugurates a new phase of the cryptoeconomy in Brazil, bringing more legal security to market participants and, therefore, more strength to this sector.

The statute brings institutionality to a booming sector in Brazil, thus creating relevant material conditions for developing the local market.

The drafting of the legal framework was widely discussed in the Brazilian National Congress and with technical authorities, such as the Central Bank of Brazil (Bacen) and the Brazilian Securities and Exchange Commission (CVM). The statute creates two definitions that will act as touchstones for the entire sector: the concepts of virtual assets and virtual asset service providers.

Cryptocurrencies such as Bitcoin, Ether, Litecoin, and Dogecoin stand out among the virtual assets described by the Crypto-assets Law. The virtual asset service providers category includes exchanges and custodians of virtual assets.

Both definitions are of fundamental importance for the consolidation of the crypto economy in Brazil, as the rules of conduct, procedure, and accountability of the various economic players operating in the sector will be based on them.

Furthermore, the Crypto-assets Law assigns a Federal Public Administration entity the duty to create specific rules for virtual asset service providers. It will be up to the entity, which must be indicated by the Executive Branch, to authorize the operation of virtual asset service providers, among other things.

Participants in the national and international crypto-asset market interested in doing business in Brazil are getting prepared for the issuing of the statute that will define the regulatory authority and the debate the issuing of further regulations.

Until the regulatory entity is appointed and regulations are  published, however, the main provisions of the law will have little practical effect. For example, the provisions that determine the need for authorization for the operation of the virtual asset service providers in Brazil will not have practical application until the regime for its authorization is laid down.

Until regulations are enacted and come into force, only the principles and norms of consumer and criminal law will have immediate effect.

It is important to remember that the scope of the Crypto-assets Law is also limited, even after the regulations are issued. Although it has been dubbed the Legal Framework for Crypto-assets, the statute does not cover all types of crypto-assets.

The draft brings a restrictive definition of virtual assets, excluding from its scope some forms of crypto-assets widely adopted in the market, such as NFTs – non-fungible tokens. The commercialization of these assets continues to be governed, depending on the case, by the general regime of Civil and Consumer law mostly.

The same goes for tokens representing assets that have features of securities. The Legal Framework for Crypto-assets rightly excludes such assets from its scope, as they are already subject to capital market legislation and norms issued by CVM.

The new Crypto-assets Law comes into force shortly after the European Union adopted rules on the crypto-assets market. On May 16, the regulation known as MiCA (Markets in Crypto-Assets) came into force, which is part of a European Union package to promote technological development, with financial sustainability, fostering innovation and consumer protection, helping to integrate and harmonize the local rights of the block.

With similar provisions, the Legal Framework for Crypto-assets, in Brazil, and the MiCA, in the European Union, will bring more protection to participants in the crypto asset market in the respective jurisdictions, with imposition of transparency and implementation of governance and a specific structure for issuers and service providers, including compliance with anti-money laundering rules.

The entry into force of the Crypto-assets Law is an important step towards the consolidation of the crypto-assets market in Brazil. We continue to monitor and await, along with the market, the issuance of the statute to indicate the regulatory authority and the start of the debate on the publication of further regulations.