According to Chainalysis, the deadly conflict that began with Russian attacks on Ukraine has increased crypto-related activity in both countries. Fiat inflation and sanctions pressure led to several spikes in transaction volume this year, the blockchain forensics firm found, and Eastern Europe as a whole has maintained its role in the global crypto ecosystem.
Russians and Ukrainians turn to crypto amid the consequences of escalating military conflict
Russia’s invasion of Ukraine and the ensuing military conflict is currently escalating, affecting all aspects of life in both countries, and cryptocurrency is no exception, Chainalysis says in a forthcoming 2022 Geography of Cryptocurrency Report, states an excerpt from the upcoming 2022 Geography of Cryptocurrency Report. Citizens in both countries felt the economic impact of the war and experienced high inflation.
Shortly after hostilities began in late February, cryptocurrency transfers between Russia and Ukraine increased. In the following weeks and months the trends diverged, with Russian transactions oscillating in a relatively narrow range, perhaps influenced by service restrictions, while Ukrainian transactions increased steadily through June.
In March, just after the war began, Ukrainian hryvnia-denominated trade jumped 121% to $307 million and Russian ruble-denominated trade jumped 35% to $805 million. The study’s authors note that “trade in both countries then declined, increasing and decreasing through August, but falling short of the March high.”
According to Tatiana Dmytrenko, a high-ranking advisor to the Ukrainian Ministry of Finance and a member of the World Economic Forum’s Digital Assets Task Force, some of the currency controls introduced under the martial law that Kiev has invoked, including restrictions on cash purchases of US dollars and euros and overseas remittances Ukrainians may have wanted to convert their holdings of hryvnia into cryptocurrency, and when these measures were relaxed in July, the volume of crypto transactions declined.
Chainalysis cites money laundering experts who commented on similar activity in Russia, where currency controls were applied. The big question for oligarchs as well as ordinary Russians became ‘how to get money out of Russia,'” said the expert, who chose to remain anonymous. He added that “many people started looking for new places where they could cash their crypto,” and cited the UAE, Turkey, Kazakhstan, and Georgia as jurisdictions where Russians were able to find such services.
According to the researcher, crypto markets are rarely liquid enough to support organized sanctions evasion, but after Russian banks were cut off from the global payment messaging network SWIFT, cryptocurrencies could play a could play a role in financing. The expert noted that Russia’s central bank recently agreed to legalize crypto payments for cross-border settlements, and some companies may have already begun using digital assets for such transactions. In his opinion, stable coins will likely be the preferred medium of exchange, as they are not as unstable as bitcoin.
Eastern Europe maintains 10% share of global crypto transactions, Chainalysis data shows
Overall, Eastern Europe is the fifth largest cryptocurrency market with $630.9 billion in value received on-chain between July 2021 and June 2022, and which is a little more than 10% of global trading activity during that period, according to Chainalysis. While other regions have seen more volatility, the region’s “comparative role in the larger, global crypto ecosystem has been remarkably consistent over the last few years,” the company elaborated.
“Looking at on-chain activity in Eastern Europe, risky and illegal activities remain prominent. High-risk exchanges (those with no or low KYC requirements) account for 6.1% of the region’s trading activity,” the report further notes.According to Chainalysis, according to the compiled data, more than 18% of all cryptocurrencies received by Eastern Europe come from addresses associated with dangerous or illicit activity activity, more than any other region, coming from addresses associated with such activity.
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