Brazil’s federal government is pushing ahead with plans to enhance oversight of cryptocurrency transactions, even as sweeping tax reforms on digital assets provoke sharp political debate.
In a formal notice published via ComprasNet, Brazil’s online public procurement portal, the Ministry of Justice and Public Security called for proposals on new technology capable of monitoring and tracing crypto transactions across multiple blockchains.
The initiative seeks “software for locating, tracking, and crypto asset transactions based on the blockchain,” aimed at strengthening law enforcement efforts to combat cybercrime and illicit finance.
According to the government’s requirements, the proposed system must be able to trace activity in popular cryptocurrencies, including Bitcoin (BTC), Ethereum (ETH), Binance Coin (BNB), Dogecoin (DOGE), XRP, and others. The software must also be able to pinpoint IP addresses and identify the city and country of users involved in transactions.
Although the tool is slated for use in several federal capital regions, notably absent from the notice are Brazil’s two largest cities, São Paulo and Rio de Janeiro, raising questions about the scope and strategic focus of the government’s crypto surveillance ambitions.
A Booming Crypto Market Under the Microscope
Brazil’s move comes as digital assets play an increasingly prominent role in the country’s financial landscape. Statista projects Brazil’s crypto market revenue will reach $3.3 billion in 2024, with user penetration climbing to 13.82%. The use of digital currencies for imports surged 40% from 2023 to 2024, rising from $1.03 billion to $1.42 billion.
Yet, as the market expands, so does the pressure on Brazilian authorities to build a more robust regulatory framework. The latest tracking initiative underscores a growing official urgency to gain visibility into the flow of crypto assets, particularly as they become a favoured channel for cross-border payments and, potentially, criminal finance.
Legal Rulings Tighten the Net on Crypto
In May, Brazil’s Supreme Court handed down a pivotal decision permitting lower courts to subpoena digital asset exchanges in order to identify and seize crypto holdings from debtors. The ruling not only bolsters the enforceability of court orders but also gives asset recovery professionals a new avenue to pursue hidden wealth stored in digital wallets.
Still, the regulatory picture remains murky. While multiple government branches are making strides towards a more cohesive crypto oversight regime, tensions are emerging over how and how heavily to tax the sector.
New Tax Plan Sparks Backlash from Lawmakers
Last week, the Finance Ministry unveiled a proposal to overhaul the country’s crypto tax code. Under current rules, retail traders enjoy a R$35,000 (about $6,500 USD) capital gains exemption. The new plan would replace this with a flat 17.5% tax on all digital asset gains, regardless of value.
The proposal has ignited a backlash from some lawmakers. Federal Deputy Gustavo Gayer introduced a legislative decree to block the new tax plan, accusing the executive branch of exceeding its constitutional authority. “This is a unilateral overreach that undermines financial autonomy,” Gayer said in presenting his proposal.
Meanwhile, fellow lawmaker Eros Biondini went even further, introducing legislation that would exempt digital assets from taxation altogether and direct the federal government to establish a Bitcoin reserve.
Awaiting the Central Bank’s Regulatory Blueprint
Amid the legislative wrangling, all eyes are on the Central Bank of Brazil, which was given regulatory authority over digital assets under a 2022 law. That legislation laid out a foundation for licencing, compliance standards, and penalties for violations. Although initial rules were expected in 2024, delays have pushed finalisation to later this year. A round of public consultations concluded in February, but a concrete timeline for implementation has not been announced.
Balancing Growth and Oversight
Brazil’s dual-track approach of boosting enforcement capabilities while debating taxation and regulation reflects a broader tension confronting governments worldwide. How can a country encourage innovation in digital finance while protecting against abuse and ensuring fair taxation?
As Brazil ramps up its technical capabilities to monitor crypto flows and lawmakers jockey over fiscal policy, the direction of the country’s digital asset landscape hangs in the balance. One thing is clear: with crypto usage accelerating, the need for a unified and transparent approach has never been more urgent.
