Brazil’s Securities Regulator Gives Green Signal For Funds to ‘Indirectly’ Invest in Cryptocurrencies

Comissão de Valores Mobiliários (CVM), which acts as Brazil’s equivalent of the Securities and Exchange Commission in the United States, has permitted fund managers to “indirectly” invest in cryptocurrencies starting early May this year.

The regulatory body is set to:

• Publish guidance which would advise fund managers on the exact extent to which they can participate in global cryptocurrency markets without causing any conflict with the local regulators.
• Notify of the certain rules and procedures that fund managers must abide by when becoming involved with cryptocurrency, such as disclosing these activities to potential investors as well as the value proposition for becoming involved in the first place.

Indirect Investment in Cryptocurrencies

The guide tool mentioned will be immediately followed by the announcement issued by the CVM in January of this year prohibiting funds from directly investing in cryptocurrencies like bitcoin on the grounds that they are not financial assets. But at CVM, there’s no room for indirect investment.

Daniel Maeda, director of institutional investor relations at CVM, said,

“The opinion to be released by the agency will explain under which circumstances an indirect investment by funds in cryptocurrencies will be permitted,”

He continued about the indirect investment, saying,

“It was our objective to release this guidance now, but we had to release that position in January because we perceived a movement in the market. What we will explain is how [indirect investment] must be done, the level of due diligence required, the amount of effort a fund must undertake to avoid a fraud or custodial or liquidity problems”

Here, CVM feels apprehensive and shows concern that if fund managers don’t have sufficient experience and information to accurately analyze these new assets, and this goes against the premise that fund managers should be more skilled at generating returns than an average investor.

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