In the last year, Brazilian authorities have had a lukewarm stance on crypto, opening their arms to the institutionalization of stock-linked crypto options but still treating crypto users as second-class citizens.

Recent changes, including the proposal to ban stablecoin withdrawals to self-custody wallets and the elimination of tax exemptions for small traders, are a clear sign of the direction that the country is taking regarding grassroots crypto adoption.

In the second case, now all cryptocurrency holders and traders will have to pay income taxes for their holdings quarterly, even if they don’t hold this cryptocurrency in exchanges. The measure, which is likely a maneuver to offset the proposed financial transaction hike to a reduced target audience, might achieve the very opposite of what it was set to do.

Instead of incentivizing crypto users to come forward and legalize their holdings, this new 17.5% across-the-board tax will spark an underground movement, taking these transactions and holdings private again.

The Brazilian tax authority would go after the digital assets under user self-custody, even when getting this data might prove impossible. This means that, with the first data delivered to the institution, each trader will be single-handedly offering discovery info to be pursued by state authorities.

Ironically, this measure will benefit large holders and traders, who had to pay up to 22% for their income in crypto before, affecting traders on the lower side of the income spectrum.

Members of the industry are already complaining about this fact, stressing that a massive exodus to the decentralized side of the crypto ecosystem might ensue, or to centralized platforms that run rogue businesses in the country. This, ultimately, will result in a setback for users who will have to rely on unregulated brokers to manage their digital assets.

Read more: Brazilian Authorities Terminate Exemptions, Aims to Tax Crypto Held in Self Custody

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