Brazil's crypto market may shrink as less than 10% of companies seek licenses

Brazil's crypto market has entered a regulatory reshuffle period, and less than 10% of companies are expected to be authorized by the central bank.

Brazil's crypto market is undergoing profound regulatory restructuring. Industry estimates show that less than 10% of companies currently operating in the country are expected to seek authorization from the Central Bank before the October deadline.

The prospects for licensing applications are bleak

According to industry estimates, it is estimated that only 20 to 25 companies may apply for authorization, and approximately 10 companies will ultimately obtain licenses. Existing cryptocurrency service providers must initiate the authorization process by October 30, otherwise they will face penalties of stopping operations within 30 days.

According to Valor Investe, people closely following the licensing process estimate that the number of domestic and foreign companies providing virtual asset services in Brazil is between 150 and 200, although some industry estimates are close to 300. However, only 20 to 25 companies are expected to have the capital, structure or willingness to apply, and eventually about 10 companies will be authorized as "virtual asset service providers"(PSAVs).

Companies that had provided virtual asset services before the new rules came into effect in February must submit the first phase of authorization requests by October 30. Companies that do not enter the process before this deadline will be given a 30-day grace period to stop business operations. These estimates are still unofficial, and the actual number of applications will not be clear until the end of the reporting period. In addition, financial institutions that already hold a central bank license do not need to obtain separate authorizations in this area, while fund managers remain subject to the Brazilian Securities and Exchange Commission (CVM) regulatory framework.

Market adjustments lead to exit or reorganization of many companies

As the authorization deadline approaches, a number of cryptocurrency companies have reorganized or withdrawn in Brazil:

• Bitnuvem: Closed its Brazilian business this year due to rising operating costs and increased compliance requirements.
• NovaDAX: It ended its operations in Brazil in June this year with an agreement to allow customers to migrate to Foxbit.
• Digitra.com: Subsequently shut down its retail operations and directed customers to Foxbit.
• BTG Pactual: Integrate its Mynt crypto platform into the bank's existing platform, bringing the group's digital asset activities into its existing architecture.
• Bitso: In early September, it changed its retail model in Brazil through a partnership with Mercado Bitcoin. The country's retail customers are being guided to invest through Mercado Bitcoin, while Bitso is shifting its local focus to infrastructure and institutional services.
• Coinext: After nearly ten years of operation, it announced the closure of its retail business and the termination of crypto transactions and custody services for related customers. Its institutional asset management business Coinext Asset will continue to operate. Unlike early exit cases, Coinext directly pointed to the new regulatory environment as the reason for its decision. The company said it found no viable options after evaluating requirements to remain in the market, discussing with potential partners and considering alternatives.

Industry participants cited by Valor Investe said that more client portfolio transfer negotiations are underway, which means more restructuring announcements could come before the transition period ends.

Capital requirements raise barriers to entry

Capital requirements have become one of the main obstacles in determining whether companies seek authorization. During the public consultation period 109/2024, the Central Bank proposed a minimum equity of 1 million reais for virtual asset intermediaries such as exchanges, 2 million reais for custodians, and 3 million reais for brokers engaged in both activities.

But in the final rules released in November, the requirements were significantly increased. Depending on the company's business and risk profile, the capital requirements range from R $10.8 million to R $37.2 million.

The authorization process is not limited to capital requirements. Companies must also meet requirements covering governance, internal controls, risk management, security, anti-money laundering procedures, technical certification, auditing and regular regulatory reporting. Previous reports pointed out that Brazil approved another set of capital and risk rules in July, which will take effect in January 2027 and will eventually include virtual asset service providers in the S4 regulatory category by June 2028. Smaller S5 institutions will no longer be allowed to provide virtual asset services.

The licensing framework already requires applicants and companies seeking renewal to provide independent audit reports. Auditors must evaluate areas such as anti-money laundering controls, client asset isolation, internal risk management and employee compliance plans. Starting from January 1, 2027, licensed exchanges will also be required to provide daily asset adequacy reports demonstrating that they hold sufficient assets to cover operational and security risks.

Regulatory timetable raises industry concerns

Isabel Sica Longhi, Latin American director of public policy and regulation at Ripple, said the pressure comes not only from the substance of the requirements, but also from the pace of the introduction of new measures. She pointed out that the new measures were quickly introduced while the company was still adapting to early rules. "The biggest problem is this sequencing, everything comes so quickly that the rules are adjusted without even waiting to see if the risks the central bank aims to address through Resolutions 519, 520 and 521 are actually addressed." Longhi told Valor Inste.

Executives cited in the report said the central bank had set high regulatory thresholds because of issues involving fintech companies. These issues include fraud, cyber attacks, third-party account use and weak control structures.

Security requirements continue to expand. In August, the Central Bank introduced new regulations requiring certain encrypted transfers exceeding $10,000 to foreign virtual asset providers or self-custodial wallets starting January 1, 2027, with funds retained for up to 24 hours. Providers can release transactions early after completing necessary risk assessments. Regulators have also partnered with Hypernative to develop a real-time cryptographic threat alert system after attackers converted some of the proceeds of a major cyber attack into cryptocurrency. Foxbit and Mercado Bitcoin are among the companies preparing to participate in the threat monitoring network.

Small crypto companies face higher compliance costs

Companies expected to stay in Brazil are not unanimously opposed to stricter regulation. One executive cited by Valore Invest described compliance as a necessary part of operating in regulated markets, saying that "regulation is not something to cry about, it's something to follow." The executive said clear rules and central bank supervision are necessary for the industry to mature, but believes the current calibration may reduce innovation by excluding small businesses and business models that cannot absorb regulatory costs.

Longhi also described the reduction in the number of companies as a natural part of regulation, but distinguished between eliminating unsuitable operators and excluding companies simply because of their small size. "Streamlining of the market is natural and will happen no matter what." "If something unnatural happens, it's stopping markets from exist and removing them just because they're small players," she said.

Meanwhile, major Brazilian banks are expanding access to digital assets under existing regulatory structures. Itaú, Bradesco, Santander, Banco do Brasil and Nubank have expanded their encryption services since 2025. Central bank documents in March showed that the banks do not hold virtual assets on their balance sheets. Nubank offers 28 digital assets to more than 7 million crypto customers, while Itaú offers 15 assets through its investment platform.

Mercado Bitcoin continues to expand during the regulatory transition. Tether invested $20 million in the company in July as part of a strategic financing round focusing on tokenized assets, payments, lending and on-chain capital markets. At the time, Mercado Bitcoin said it served 4.5 million users and had issued more than 2 billion reais in tokenized assets.

After October 30, the total number of companies entering the central bank authorization process will be clearer. Prior to this, industry participants expect further closures, customer migrations, mergers and collaborations to allow companies to decide whether to seek their own authorization or operate through other regulated structures.