Brazil is tightening its grip on retail crypto users while showing a friendlier face to institutional finance. Recent policy proposals include banning stablecoin withdrawals to self-custody wallets and removing the previous tax exemption for small crypto traders. Under the new rules, all crypto holders, regardless of platform or amount, must report and pay income tax on their assets quarterly, even if those assets are held in self-custody.
The blanket 17.5% tax is being framed as a way to make up for a retracted financial transaction tax, but the real effect may be the opposite of its intent. Instead of bringing retail crypto usage into compliance, it risks pushing users underground. Traders will now be compelled to reveal wallet data to the Receita Federal, the tax authority, which can then pursue them, even if the actual enforcement of such claims across decentralized wallets remains technologically murky.
This move is paradoxical. It rewards large holders who were previously taxed up to 22% on crypto income, while punishing low-income traders who now face a flat rate. Rather than taxing the rich, it risks driving away the base.
Critics argue that this will lead to a migration toward unregulated offshore platforms or deeper into the DeFi and peer-to-peer ecosystems, which are harder to monitor. Ironically, by trying to tighten control, Brazil may lose visibility altogether. Self-custody was once seen as a personal financial right, now it is being reframed as a potential tax evasion tool. The state’s message is clear, use regulated rails or prepare to be surveilled.
Institutions tied to traditional finance may benefit from this controlled approach, but grassroots adoption, the engine of early crypto growth in Brazil, is likely to suffer. What was once a budding crypto economy could become fragmented between those who can afford compliance and those who disappear into the shadows.
