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