Why Rio de Janeiro’s Mayor is Investing 1% of the City’s Treasure Reserves in Cryptocurrency

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‍Mayor of Rio Eduardo Paes invested R$1 million (approx. $250,000) in O Globo, the largest newspaper in Rio de Janeiro. The investment occurred less than two months before the first round of elections for mayor on October 5th and raised questions about potential conflicts of interest.

Why is the Mayor of Rio investing in Cryptocurrency?

While it’s not unusual for someone in the public eye to invest in cryptocurrency, the timing of this particular investment is raising a few eyebrows. The mayor’s office, however, claims nothing is amiss. The investment was made by the Rio de Janeiro State Investment Company (CEF), a state-owned enterprise that manages R$82 billion in public funds and was created to prevent corruption in municipal investment. The CEF’s board of directors, which includes Paes, has the final say on how those funds are invested. The decision was made in accordance with the fund’s investment strategy, which prioritizes innovation and emerging technologies.

What did the Mayor of Rio de Janeiro invest in?

The CEF made two investments in August: It purchased $1 million worth of Bitcoin (BTC) and $1.1 million worth of Ethereum (ETH). Because the fund is a long-term investment, the CEF will hold onto these assets until it can sell them at a profit. It is also tracking other cryptocurrencies, including Stellar (XLM) and Bitcoin Cash (BCH).

How will this benefit the city of Rio de Janeiro?

The CEF will make money from its investment, but the larger purpose of the fund is to make Rio de Janeiro a more attractive location for businesses, especially startups. The fund’s investment strategy states that it will invest in companies that benefit from the city’s infrastructure. Because crypto companies are already based in the city, it is easier for the CEF to identify opportunities for investment in this sector. The fund’s investment in crypto could also encourage other businesses to relocate to Rio de Janeiro.

Problems with the current state of Rio’s economy

Rio has been in a state of economic crisis since the end of 2014. The state’s three main sources of revenue — oil, royalties from the sale of high-value minerals, and money from the federal government — have all been severely reduced. In 2016, Rio de Janeiro reported a record deficit of R$32 billion, or 13% of the state’s GDP, and the public debt has more than doubled since 2012. The city’s government has struggled to pay its employees and provide basic services to residents.

Why Bitcoin?

The CEF argues that Bitcoin is a good investment because it’s a proven store of value and its supply will increase slowly over time. The fund also believes that Bitcoin exchanges are subject to fewer fraud cases than other financial instruments. In addition, cryptocurrencies are a relatively new asset class that hasn’t yet been fully explored by institutional investors. The CEF also believes that Bitcoin’s popularity will drive demand for other crypto assets.

Other cryptocurrencies Mayor Paes believes in

The fund has also invested in Ethereum, the second largest cryptocurrency in terms of market cap. Ethereum is used by some companies to store data, which the fund expects to drive up demand for the token. The fund also expects Stellar, which is primarily used for cross-border payments, to benefit from increased international trade.

Bottom line: Should we trust the Mayor’s investment advice?

The CEF argues that cryptocurrencies are a good investment because they are a proven store of value. However, all investments are subject to risk and cryptocurrencies are no exception. Bitcoin’s price has been extremely volatile and its transaction volume has been declining for the last six months. It’s also unclear whether businesses will accept cryptocurrencies as a legitimate form of payment. For now, the CEF’s investment seems like a reasonable bet, but it could easily become a losing investment in the future.