Brazilian companies turned to stablecoins on election day to dodge a currency crash

Brazilian companies entered a crypto trading frenzy on Sunday to protect their treasuries from the outcome of an election that saw incumbent President Luiz Inácio Lula da Silva, known as Lula, unexpectedly beat Flávio Bolsonaro.

Corporate accounts generated 78% of trading on crypto exchange Mercado Bitcoin, with turnover in Tether’s dollar-pegged stablecoin, USDT, jumping nearly 800% from the week before and more than triple the average of the four preceding Sundays. Trading in bitcoin BTC$84,459.46 surged 865% compared with the previous Sunday, the exchange said.

Lula’s platform of increased social spending and a ban on online betting that would reduce tax income sparked concerns the country’s finances would suffer if he won, adding to pressure on the real and keeping borrowing costs high. Rising debt, new spending commitments and limited scope for tax increases would make that task harder.

“For investors, this reinforces the logic of not relying only on the real,” Pedro Fontes, a research analyst at Mercado Bitcoin, wrote in an analysis shared with CoinDesk. “In this scenario of higher exchange rate pressure, stablecoins, such as USDT and USDC, are a simple way to dollarize part of your assets, at any time and starting from low amounts.”

Stronger opposition in Congress could complicate efforts to address fiscal problems, reinforcing the appeal of assets whose prices are set in global markets, he said.

Corporate concerns materialized the next day, when the benchmark Ibovespa stock index crashed 14% in its worst performance since March 2020 and the dollar jumped more than 8% against the real, its largest daily gain since 1999.

Unexpected turnaround

The response had been different three weeks earlier, when Bolsonaro finished ahead of Lula in the first round of voting. The Ibovespa jumped 7.7% and the dollar weakened more than 4% against the real as investors anticipated a change of government and tighter control over public spending.

Lula´s victory made him the first presidential candidate in Brazil’s modern democracy to secure a victory after finishing in second place. Even so, Brazil’s companies took a cautious stance.

“The main driver of volume was companies seeking to protect their treasuries,” Mercado Bitcoin said. “Retail customers were responsible for just 22% of trading volume, while MB’s corporate clients generated 78% of the total for Sunday.”

Corporate clients are known to hold up to 15% of their assets on the platform.

The burst of real-denominated trading extended beyond Mercado Bitcoin. Data from Biscoint, which tracks crypto prices and volume across 10 venues including Binance and MB, shows turnover in USDT, the largest stablecoin, against the real rose 150% from the previous Sunday. Volume in USDC, the second-largest, jumped 318%.

The surge extended into Monday, with combined USDT and USDC turnover reaching 1.84 billion reais ($350 million), 65% higher than in the previous week, while bitcoin trading rose more than ninefold to 1,336 BTC.

The increases came as volumes fell elsewhere. On Binance, for example, bitcoin turnover against the real rose 370% while the global BTC/USDT pair recorded a 25% decline.

Bitcoin gained 9.4% against the real while slipping 0.2% against USDT, consistent with a repricing of Brazil’s currency as investors reacted to the election.

Prediction markets miss

The expectation of a Bolsonaro victory was also reflected in prediction markets. In an Oct. 24 preview, Kalshi put his chances of winning at 84%, even as its own article described polling as showing an exceedingly close race.

Kalshi and Polymarket have both been blocked in Brazil since April.

Lula won the runoff the next day, in an election that included a controversial last-minute two-hour extension to voting time granted by Lula’s former defense attorney.

“[Prediction markets] were trading the first-round result, poll headlines and the story built around them,” Einar Knobel, CEO and co-founder of sports data and technology company TxODDS, told CoinDesk in an emailed statement.

“I would not read this as a failure of prediction markets,” Knobel said. “The mechanism did what it is designed to do with the information it was given.”