Brazil could become a great source of demand for Bitcoin (BTC) due to its new interest rate adjustment
Brazil's economic gloom continues amid the coronavirus pandemic. The deterioration of the fiscal position and political uncertainties have created fears of a deep economic recession.
The Central Bank of Brazil has also reduced the interest rate to 3%, which is a record low. In fact, it is expected that there will be another reduction in monetary policy in the interest rate as they seek to complete the degree of stimulus necessary to ease the economy.
According to a report Posted by Delphi Digital, the 30% loss in the value of the Brazilian real and the reduction of the interest rate to 3% will lead investors to a better option. In the report, it was stated that the size of this possible movement could be a source of demand for Bitcoin.
This will be more possible if tighter capital control becomes more common as speculated in the report. In order not to misunderstand, this report does not suggest that capital flowing from emerging markets will definitely go to Bitcoin.
The use of cryptocurrencies in Latin America In recent years it has been very encouraging with Brazil, Colombia, Argentina, Mexico and Chile among the top 10 cryptocurrency countries. It is interesting to note that most countries facing serious economic problems turn to Bitcoin as there is a good correlation between Bitcoin and some of the highly inflationary Latin American countries.
In 2019, the inflation rate of Argentina It was 58.9%, and around this period, Bitcoin users in this region increased significantly. Similarly, Brazil, in 2015, witnessed the worst inflation rate in 13 years.
The country's economic distress coupled with the recently adjusted interest rate puts Brazil online as a source of demand for Bitcoin, there is a challenge that may possibly arise from the implementation of the new tax regulation that pushes the smallest exchanges in the market .
According to Acesso Bitcoin co-founder Pedro Nunes, the tax regulation dramatically affected trading volume forcing them to consider a shutdown. Latoex, another exchange affected by the implementation of the tax regulation, pointed out the difficulties in meeting the requirement announced by the authorities.
Tax regulation is obviously a problem for smaller exchanges and a lesser problem for larger ones. Given the fact that most of the larger exchanges can meet, the impact on smaller exchanges will not be huge in the market and may not stand in the way of the country becoming a source of Bitcoin demand.