Circular Letter CVM/SIN 01/2018: Investment by Investment Funds Regulated by CVM Instruction No. 555/14 in Cryptocurrencies

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br Circular Letter No. 1/2018/CVM/SIN Rio de Janeiro, January 12, 2018

To the Directors Responsible for the Administration and Management of Investment Funds

Subject: Investment, by investment funds regulated by CVM Instruction No. 555/14, in cryptocurrencies

Dear Sirs,

We refer to the communications issued by the CVM on 10/11/2017 and 11/16/2017, related to Initial Coin Offering ("ICO") operations, and to inquiries made by various market participants regarding the possibility of investment, by investment funds regulated by CVM Instruction No. 555/14, in what are currently called "cryptocurrencies."

As is known, both in Brazil and in other jurisdictions, the legal and economic nature of these investment modalities is still being discussed, without having reached a conclusion, especially in the domestic market and regulation, regarding such conceptualization.

Thus, based on this indefiniteness, the interpretation of this technical area is that cryptocurrencies cannot be qualified as financial assets, for the purposes of Article 2, V, of CVM Instruction No. 555/14, and for this reason, their direct acquisition by the investment funds regulated therein is not permitted.

Other inquiries have also reached the CVM, inquiring about the possibility that investment funds be constituted in Brazil with the specific purpose of investing in other vehicles, constituted in jurisdictions where they are admitted and regulated, and which in turn have the strategy of investing in cryptocurrencies. Or, furthermore, in derivatives admitted to trading in regulated environments of other jurisdictions.

However, it is worth reiterating, once again, that the existing discussions on investment in cryptocurrencies, whether directly by funds or in other ways, are still at a very incipient stage, and coexist, incidentally, with Bill No. 2,303/2015 currently in progress, which may prevent, restrict, or even criminalize the trading of such investment modalities.

Thus, in the understanding of the technical area, it is undeniable that, regarding such investment, there are still many other risks associated with its very nature (such as cybersecurity risks and specific custody risks), or even linked to the future legality of its acquisition or trading.

Therefore, this Superintendence informs that all these variables are being taken into consideration in the evaluation of the possibility of constituting and structuring indirect investment in cryptocurrencies, without having yet reached a conclusion regarding this possibility.

Finally, given these circumstances, we deem it appropriate that administrators and managers of investment funds await a subsequent and more conclusive manifestation from this Superintendence on the subject to structure indirect investment in cryptocurrencies as described, or even in other alternative forms that seek this nature of risk exposure.

Sincerely,

Digitally signed by
DANIEL WALTER MAEDA BERNARDO
Superintendent of Institutional Investor Relations