Illustration shows words stock graph and representation of cryptocurrencies
Representations of cryptocurrencies are seen in front of displayed decreasing stock graph in this illustration taken November 10, 2022. Reuters

Brazilian crypto advocates are urging lawmakers to give final approval on a bill aimed at boosting oversight of the sector, after the collapse of FTX - once an industry darling - raised fresh concern about unregulated digital currencies.

Roberto Dagnoni, a top executive at SoftBank-backed exchange Mercado Bitcoin, said the law had been "kind of dormant" during the election period but now needed to be a priority.

"If there is a good side (to the FTX disaster), it would be that it gets the law prioritized," he told Reuters on Tuesday. "The rules that currently exist have not been applicable to some players, so they can do whatever you want ... This (law) would change a lot."

The bill, passed earlier this year by the senate and now awaiting lower chamber approval, would force all locally active crypto providers to have a physical entity in the country, and mandatory disclosure of suspected money laundering and other criminal activities. The text outlines fines and even imprisonment for breaches.

Brazil is one of the top 10 active markets globally for crypto, according to 2022 Chainalysis data.

Fernando Furlan, the former president of the country's blockchain association, also said he hoped the FTX saga would be "a push enough" to get the law passed.

Furlan added that while the law may make it harder for so-called 'dot com' crypto exchanges and smaller groups to operate due to higher reporting standards, this was a healthy trade-off.

"If it's good for Brazilian investors, then it's a good law," he added.

The law could be passed sooner than previously expected.

Newspaper Folha de S. Paulo last week cited Lower House Speaker Arthur Lira as saying the chamber was ready to vote on the law before year-end.

The president of Brazil's securities regulator said in a public panel that "it is important that we start to have rules" in crypto, and that the bill "is very close."

Nonetheless, some key actors are skeptical the bill will pass so quickly, given 2023 budget issues that have taken priority following Luiz Inacio Lula da Silva's victory in presidential elections.

Lira did not immediately reply to a request for comment.

FTX filed for bankruptcy last week and is facing scrutiny from U.S. authorities, amid reports that $10 billion in customer assets were shifted from the crypto exchange to FTX founder Sam Bankman-Fried's trading company Alameda Research.

FTX did not have a large presence in Latin America.

Dagnoni told Reuters that Mercado Bitcoin, mainly active in Brazil and Portugal, had no exposure to FTX, having developed its own custody solution to store customer assets.

He added that his exchange had even seen "net positive" volume flows, despite mass withdrawals globally.

"I think people are separating between the asset and bad management," he said.