Brazil’s sinking real and quickening inflation are helping the country’s biggest bitcoin brokerage drum up buyers for the virtual currency.
Rodrigo Batista, president of online brokerage Mercado Bitcoin, said trading volume climbed to 10.5 million reais ($4.4 million) in December from almost zero a year before, growth he attributed in part to the real’s selloff.
Brazil’s real has plunged 9.6 percent in the past three months against the dollar, making it difficult for policy makers to curb inflation despite the world’s biggest borrowing-cost increases. Inflation that accelerated to 5.91 percent in 2013, even after central bank President Alexandre Tombini said it would slow, is adding to Brazilians’ interest in bitcoin, a virtual currency that surged to $1,005 last week on trading platform Mt Gox, up from $15 about a year ago.
“Fear of inflation is a determining factor for some people to take risks on Bitcoin here,” Batista, a former program developer for Morgan Stanley in Brazil, said in a Jan. 22 interview in Sao Paulo. “There are no good investments here with inflation at 6 percent plus high tax rates. If the real continues to weaken a lot, it will also continue to benefit the market.”
Batista anticipates that volume on Mercado Bitcoin will surge to about 160 million reais a month in 2014 to rival trading volume in Germany. Batista and two partners bought the brokerage from a software developer in April. The exchange, which now has six employees, makes an average of about 2.5 percent on transactions, he said.
Bitcoin has had a mixed reception in emerging markets, as authorities seek to protect consumers and businesses from potential losses. China’s central bank has banned lenders from handling Bitcoin and the Reserve Bank of India warned virtual currency traders of legal risks.
Brazil’s central bank said it isn’t regulating Bitcoin for now under a law on payment methods because the virtual currency isn’t significant enough to be of “systemic importance,” according to an e-mailed response to questions Jan. 22.
The real’s 28 percent plunge in the past two years is the biggest among major currencies tracked by Bloomberg after the South African rand. Fiscal deterioration under President Dilma Rousseff is fueling bets on a credit-rating cut, and Brazil also has the highest tax rate among major emerging markets, according to the World Bank.
Most buyers in Brazil are interested in Bitcoin as an investment, Batista said. Brazilian businesses from sex shops to hotels accepting the currency are signs that the central bank’s neutral stance is a boon to the market, he said. Clients include investors from neighboring Argentina with Brazilian roots, who are drawn to Bitcoin to avoid capital controls and a depreciating peso.
Volatility is a concern for Bitcoin buyers, Batista said. The digital currency reached a record $1,242 in November, and fell to less than half that price a few days later.
“People are looking at this as a risky new asset with potential for big gains, like a binary assets in which you either get a big pay-out or zero,” he said. “They put in money that they’re comfortable with losing.”