Due to the constant reduction in the value of the Brazilian currency, Real, people have become more incentivized to delve into cryptocurrencies. The economy of Brazil has taken a hit over the past few years and this has been reflected in their Brazilian real relative to foreign countries and foreign currencies such as the dollar. The devaluation of the Brazilian real has caused a ripple effect in the manner with which Brazilians store or trade money; they have turned to stablecoins. A good example is the up-and-coming Tether stablecoin which has been growing steadily in the market. Inflation is also higher and things do not seem to be looking up. Citizens of Brazil transacted over $11 billion in stablecoins between January and November 2021 per the Brazilian tax authority, Receita Federal. This wasn’t the first time that there has been such a high level of trade of stablecoins on the blockchain network. These crypto exchanges of stablecoins also happened in 2020, when $10.8 billion was traded among locals. It is also clear that this hit to local currency had not led to a shift or rise in crypto exchange on places like https://redot.com until the lockdown happened.
What is a stablecoin? Stablecoins are coins that are tied to a particular cryptocurrency. They can also be pegged to a fiat local currency or exchange commodities that can be traded. A big factor is the high rate of inflation in the nation; it has pushed the volume of stablecoin purchases in the crypto market in 2021. The country had an inflation rate of beyond 10% which is the largest it has been in 6 years and fourth since the real was created in 1994. With stablecoins, some citizens wished to hedge against the regular diminution of the local currency against the U.S dollar. The Real went from $0.25 to $0.18 in two years.
One of the programmers in Brazil explained why Stablecoins are necessary for a variety of options. He explained that with fiat currencies such as the Brazilian real and U.S dollar, a person has no real options and is subject to the mercies of the market. To him and many crypto holders, the decentralized system using stablecoins is a way to dodge taxes and have options. The point of taxes is a good one because, with foreign currency, the people of Brazil pay taxes on financial operations that lie between 1.1 and 6.38% depending on a number of factors. Since there is no tax on stablecoins, it makes using that avenue to store one’s assets more admirable.
There are enough testimonies to go around from Brazilian residents. A businessman said despite the U.S dollar giving liquidity, it is generally a slow process with lots of paperwork and red tape. These regulations and dragging put people off the idea of continuing with the centralized system especially when you add inflation and devaluation of the real. He mentioned speed and ease as her reasons for using stablecoins to perform his transactions. Another person, a woman who is retired, talked about not worrying about registration at exchange companies or other stressful endeavors that make the centralized banking system so strenuous and unappealing. To her, purchasing through her smartphone was ideal.
The Central Bank of Brazil did not allow its people to save in U.S dollars in their bank accounts until December of last year when the rule was stopped. A new system of exchange rates has been announced but not implemented at the moment.
The Brazilian tax authority informed that USDT is the most favored among stablecoins in the nation. Almost $10 billion worth of USDT has been accrued by Brazilians from January to November of 2021. USDT is, however, not the only stablecoin being purchased and adopted in the crypto network. Stablecoins such as DAI ($12 million), USDC ($1.6 billion), and TrueUSD ($5.6 million) have been collected by crypto holders in Brazil unlike in Argentina, where DAI is just as important as USDT. In Argentina, USDT does not have a nigh-monopoly over the stablecoin market.
OLD RATES ARE LOW
It is important to look at the stock market as well, as this could serve to further answer any queries about the rise of stablecoins in the nation’s economy. Before the downward spiral of the Brazilian monetary economy, the country had a good stock market. With the bad rates, though, people have moved to what they feel is a better bet; stablecoins. People see stablecoins as the answer to the fiat system. They consider the decentralized protocols interesting especially when a person receives 15% to 20% profit in dollars over the course of 12 months. Individuals reason this is more trustworthy than the local currency of the centralized market in Brazil.
The returns on investment from fixed incomes had been at an all-time high prior to the economy taking a hit. Since then, a sharp decline has ensued. The Central Bank, in response, diminished the interest rate from 14.25% to 7% between 2016 and 2017. Eventually, they reduced it to 2% in 2021 but now, to counter the inflation rate and balance the real’s falling value compare to foreign currency, the Central Bank slowly brought up the interest rate to 9.25% which still stands at the moment.
This unified fall of traditional stock is a sharp contrast with the boom of cryptocurrency and the purchase of digital assets like Tether stablecoin. The rise of crypto exchanges has led people to search for some of the best crypto exchange websites to further engage in trade. The collapse of interest rates is part of what pushed Mercado Bitcoin, the biggest crypto exchange in the nation, to over three million members last year. They also had three times more traders than they did in 2020, the year prior. The company hit an all-time high trade volume of beyond $7 billion and the CEO, Gustavo Zeno, said it was more than their volume of all the previous years combined since their conception in 2013. Binance even made possible the buying of cryptocurrencies with the use of Brazilian reais in November 2020.