Brazil's Central Bank Proposes Ban on Stablecoin Withdrawals to Self-Custody Wallets Amid Crypto Market Growth

Brazil's Central Bank (BCB) has introduced a new regulatory proposal. This plan aims to stop platforms from allowing stablecoin withdrawals to self-custody wallets. It’s part of Brazil's broader effort to manage its rapidly growing crypto market.

The draft, announced on November 29, focuses specifically on “tokens denominated in foreign currencies.” Under this proposal, crypto exchanges in Brazil cannot facilitate the transfer of these stablecoins to self-custody wallets. The proposal states, “The provider of virtual asset services is prohibited from transferring virtual assets denominated in foreign currency to a self-custodial portfolio.”

Additionally, the proposal seeks to align cryptocurrencies with existing financial instruments, like foreign direct investments and external credit. Virtual asset service providers will need to comply with international financial regulations and report client information to the central bank.

The BCB highlights some benefits of virtual assets. They can enhance efficiency in foreign exchange services and provide new investment options. However, the bank also points out risks, such as investor protection, cybersecurity, and financial stability. The regulator noted, “The adoption of [virtual assets] raises concerns, particularly regarding consumer and investor protection, privacy, cybersecurity, and the prevention of illicit use.”

Given these concerns, the BCB believes its measures will clarify the legal landscape for businesses involved in international crypto payments and foreign currency-backed digital assets. This move comes as Brazil's crypto market continues to grow. In the past year, Brazil received over $90 billion in digital assets between July 2023 and June 2024, according to Chainalysis. Notably, stablecoins account for 70% of crypto transactions moving from local to global exchanges.

Many fintech companies and exchanges in Brazil offer USD-backed stablecoins. These are seen as a way to preserve value, especially for business-to-business cross-border payments. However, market analysts warn that this regulatory move could slow down the sector's progress in Brazil. Stablecoins are crucial to the crypto industry, with their market cap reaching a record $190 billion, according to BeInCrypto data.

The public consultation period for this proposal runs until February 28, 2025. This allows stakeholders to share their feedback. However, the BCB will have the final say on whether these inputs will influence the final regulatory framework.