The deadly conflict that began with Russia’s assault on Ukraine has increased crypto-currency-related activity in both countries, according to Chainalysis. The inflation of fiat currency and the pressure of sanctions have led to several spikes in transaction volumes this year, the blockchain forensics firm found, while Eastern Europe as a whole has sustained its role in the global crypto ecosystem.
Russians and Ukrainians turn to crypto-currencies in the face of the consequences of escalating military clashes.
Russia’s invasion of Ukraine and the ensuing and currently escalating military conflict have affected every aspect of life in both countries, and crypto-currencies are no exception, Chainalysis says in an excerpt from its upcoming 2022 Crypto-Currency Geography Report. Citizens of both countries have felt the economic impact of the war and have experienced high inflation.
Shortly after hostilities began in late February, Russian and Ukrainian crypto-currency transfers saw an increase. Over the following weeks and months, the trends diverged, and while Russian transactions hovered in a relatively narrow range, perhaps influenced by restrictions on services, Ukrainian transactions steadily increased through June.
In March, just after the war began, Ukrainian hryvnia-denominated trade volume jumped 121 percent to $307 million, while Russian ruble-denominated trade volume rose 35 percent to $805 million. “After that, we see volumes fall for both countries, fluctuating until August, but never reaching the March highs“, the study authors noted.
According to Tatiana Dmytrenko, an advisor to the Ukrainian Ministry of Finance and a member of the World Economic Forum’s Digital Assets Working Group, some Ukrainians may have sought to exchange their hryvnia holdings for crypto-currencies due to currency controls introduced under Kiev’s martial law, including restrictions on cash purchases of U.S. dollars or euros and transfers abroad. Crypto-currency trading volumes declined when these measures were relaxed in July.
Chainalysis quotes a money laundering expert who commented on similar activity in Russia, where currency restrictions were also implemented. “The major question, not only for the oligarchs but also for ordinary Russians, has become, “How do we get the money out of Russia?”“, said the expert who preferred to remain anonymous. “Many have started looking for new places to cash in their crypto” he added, citing the UAE, Turkey, Kazakhstan and Georgia as jurisdictions where Russians could have found such services.
While crypto markets are barely liquid enough to support systematic sanctions evasion, crypto-currencies could potentially play a role in financing Russia’s foreign trade after its banks were cut off from the global payment messaging network SWIFT, according to researchers. The expert pointed out that Russia’s Central Bank recently agreed to legalize crypto-currency payments for cross-border settlements, and some companies may have already begun using digital assets for these transactions. According to him, stablecoins would probably be preferred as a medium of exchange because they are not volatile like bitcoin.
Eastern Europe retains a 10% share of global Crypto transactions, according to data from Chainalysis.
As a whole, Eastern Europe is the fifth-largest crypto-currency market with $630.9 billion in value received on the blockchain between July 2021 and June 2022, representing just over 10% of global transaction activity during that period, according to Chainalysis. The “region’s comparative role in the larger global crypto-currency ecosystem has remained surprisingly consistent over the past few years“while other regions have experienced greater volatility,” the company said.
“Risky and illicit activity is still prominent when we look at Eastern Europe’s on-chain activity: High-risk trades – those with no or low KYC requirements – account for 6.1% of transaction activity in the region“, the report further notes. According to the compiled data, more than 18% of all crypto-currencies received by Eastern Europe come from addresses associated with risky or illicit activity, more than any other region, according to Chainalysis.