Adopting crypto assets has become an undeniable trend. With a significant increase in investors and growing relevance in the economic landscape, it is even navigated by significant players in traditional finance. Crypto assets are becoming increasingly popular, offering a new way to conduct transactions and store value. In this article, we'll explore the challenges crypto companies face in dealing with consumers and suppliers based on experiences working with exchanges and wallets in crypto, in the example of Brazil. State of Cryptocurrencies in Brazil In 2022, Brazil boasted over 10 million cryptocurrency investors — this number even rivals that of stock market investors. And it keeps growing: in 2023 Brazil was listed as the ninth country in cryptocurrency adoption worldwide by Chainalysis. However, despite the global recognition of crypto, companies must overcome significant challenges to implement their crypto products in the country effectively. In Brazil, however, the path to consolidating these assets is paved with challenges. Consumer Challenges Financial and Investment Education Barrier According to a 2020 Google study, 42% of surveyed non-investors view the investment world as distant and inaccessible due to the complex terminology of the financial market. Moreover, a common misconception exists that only individuals with substantial wealth can invest. This idea is made worse by setting challenging targets, such as the "1 million goal," which seems more like a far-off fantasy than a tangible ambition for many people. Poor budget management and choosing inappropriate financial products indicate the need for more financial knowledge. According to CNC data, 78.3% of Brazilian families were in debt as of April 2023. Many of these debts are related to high-interest products like credit cards. Although there are many reasons why Brazilians have debt, such a large number implies that many may need help understanding the potential impact of their financial decisions. The lack of understanding impairs people’s view of the worth and usefulness of cryptocurrency products.  Furthermore, it limits the mass adoption of inherently volatile and high-risk products requiring knowledge to compose an investment portfolio properly. The Challenge of Trust A series of frauds have marked the crypto segment. This, unfortunately, has led to general consumer distrust. In Brazil, notable examples include the cases of Bitcoin Banco and Atlas Quantum. These companies operated pyramid schemes using cryptocurrencies and caused significant losses for investors. These incidents damage the reputation of the entire sector. Additionally, the volatile nature of the cryptocurrency market and its significant and frequent price fluctuations can result in the perception of crypto products as a short-term tool. Many investors seek quick profits, but this mentality can lead to impulsive investment decisions, losses, and an aversion to more complex and strategic products. Thus, combating fraud, promoting long-term investment education, and managing volatility are crucial steps in overcoming market distrust and driving the adoption of crypto assets in the country. Suppliers’ Challenges Payment Integration Issues Crypto companies face challenges incorporating conventional payment solutions, like credit or debit cards, into their applications. This happens because many payment service providers have restrictive policies against this operation. Consequently, it becomes problematic to process and receive payments. Banking services can pose another challenge. Many banks are cautious or even resistant to providing services to companies dealing with cryptocurrencies. In recent years, there have been many cases of banks like Banco do Brasil, Caixa Econômica, and Santander closing accounts of crypto-associated companies. This can set back these companies' ability to perform regular banking transactions, including transfers to and from their customers. Communication Limitations Due to communication, crypto companies face significant limitations regarding certain products and services crucial for their operations. Email marketing, for example, is an essential communication tool for most companies. However, due to distrust and perceived risk around cryptocurrencies, some leading email marketing platforms opt to restrict or prohibit crypto companies from using their services. This can limit these companies' ability to communicate effectively with their customers and potential investors. In 2021, Mailchimp, a popular email marketing platform, changed its policy, applying restrictions for crypto content creators. In 2023, HubSpot also limited cryptocurrency promotions. Due to such decisions, crypto companies must adapt and consider other channels when planning their marketing and communication strategies. Advertising Restrictions Let's take a look at the policies of the main digital advertising vehicles in Brazil towards ads promoting cryptocurrencies and other blockchain products (as of October 2023): Google ( ): allows ads for businesses not directly linked to buying or exchanging cryptocurrencies, NFT games (with restrictions) and cold wallets. However, the platform prohibits the advertising of initial coin offerings (ICOs), decentralised finance protocols, and cryptocurrency aggregators or comparison tools. link Meta ( ): allows advertising events, educational content, or news about cryptocurrencies or blockchains that do not offer cryptocurrency products or services. Ads for blockchain-based products that are not virtual currencies, such as NFTs and cold wallets that store cryptocurrencies without additional services, are also accepted. However, promoting cryptocurrency exchanges, loans, or ICOs is prohibited. link LinkedIn ( ): prohibits any advertising related to cryptocurrency transactions, including ICOs, cryptocurrency exchanges, consultancy on cryptocurrency trading and more. link TikTok ( ): cryptocurrency advertising is only permitted with express authorisation from the platform. link X ( ): allows ads covering cryptocurrency exchanges, wallets, NFTs, and decentralised applications (DApps). Promotions of ICOs and cryptocurrency mining are strictly forbidden. Additionally, prior certification from the platform is required to advertise in Brazil. link \These restrictions are significant and pose additional challenges for companies in the sector trying to gain visibility and expand their customer base. Crypto companies must be more creative and effective in their strategies than traditional financial services. They have to turn to alternative channels, which, although less restricted, are often slower and more costly. This requires more investment and is a hurdle for startups with limited resources. The Regulatory Landscape The legal framework for cryptocurrencies is already in place in Brazil, with the Central Bank of Brazil (BACEN) designated as the body responsible for its guidelines, excluding those related to securities. However, detailed technical regulation is still lacking. This gap incurs grey areas related to, for example, registration and transaction reporting standards, exchange compliance requirements, and guidelines on the custody of digital assets. While the regulatory scenario still needs to be solidified, companies committed to the sector seek to adopt international best practices. These practices emphasise the importance of transparency in transactions, combatting money laundering, and implementing rigorous customer identity verification processes (KYC). These practices are guided by directives from recognised bodies, such as the International Monetary Fund (IMF) and the Financial Action Task Force (FATF). The absence of clear rules exposes consumers to risks. For instance, without defined security standards, users may be more vulnerable to hacks and fraud. Additionally, the lack of clarity in companies' responsibilities can lead to disputes over transactions or loss of funds. New entrants and companies face uncertainties when navigating and operating locally in this environment. References "Revolution of the Financial System and Trends in the Crypto-Economy" (translated from Portuguese). Mercado Bitcoin. 2023. The 2023 Global Crypto Adoption Index. Chainalysis. 2023. "Consumer Debt and Delinquency Research (Peic)" (translated from Portuguese). Confederação Nacional do Comércio de Bens, Serviços e Turismo (CNC). 2023. **

Challenges for Businesses in the Cryptocurrency Ecosystem

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