How Russia’s Invasion of Ukraine Has Shaped Crypto Adoption in Eastern Europe
While Eastern Europe has long been one of the largest markets for cryptocurrency, the war in Ukraine has further pushed adoption, according to a report by Chainalysis.
As part of its 2022 Global Adoption Index, Chainalysis found that Eastern Europe is the fifth largest region for crypto, representing 10% of global transaction activity from July 2021 to June 2022. While this percentage has remained largely consistent, Chainalysis’ data how war has affected how cryptocurrencies are used by the region’s general public.
Following Russia’s invasion in February, the major crypto story in Ukraine has been on the brink of donations, with blockchain analytics firm Elliptic estimating that the Ukrainian government and a prominent NGO supporting the military raised over $60 million in the first few weeks alone. In August, Ukraine’s Minister of Digital Transformation tweeted that the government had used the donations on military equipment and medicine.
Blockchain investigators also found in October that pro-Russia militia groups have collected at least $4 million in donations, often through crowdfunding campaigns on Telegram, and that number could rise.
As many of these groups are sanctioned and closed to mainstream exchanges, they instead turn to what Chainalysis describes as “high-risk” Russian exchanges, which have no or low know-your-customer requirements.
Cryptocurrency-based crime has been an important factor in the overall adoption in Eastern Europe, and especially Russia, and Chainalysis’ new report shows that the trend is increasing. High-risk exchanges account for 6.1% of transaction activity in Eastern Europe, compared to 1.2% for the next closest region.
When the United States began to sanction Russian oligarchs and associates of Vladimir Putin, many began to look for ways to make money from crypto, looking to exchanges in neighboring countries. Chain analysis data shows that online traffic to Russian cryptocurrency services in countries such as the United Arab Emirates, Georgia and Turkey increased after the war began.
Still, the report warns that cryptocurrency markets are not liquid enough to support large-scale sanctions evasion. Transaction volume waxed and waned in Russia after the invasion, possibly affected by restrictions from exchanges such as Binance, which banned Russian accounts with more than 10,000 euros from making new deposits or trading in April.
In Ukraine, however, transaction volume increased steadily from the beginning of the war until June, the last month analyzed in the report. As Chainalysis Research Director Kimberly Grauer told Fortune, Ukraine has always had a tech-savvy population with a high propensity for startups. With the war, the use cases for cryptocurrency have expanded, from donations to hedges against hyperinflation.
Tatiana Dmytrenko, a senior adviser at Ukraine’s Finance Ministry and a member of the World Economic Forum’s Digital Assets Task Force, said Ukrainians may have been looking at exchanging the hryvnia for cryptocurrency following restrictions from the Ukrainian central bank.
In March, Ukrainian hryvnia-denominated trade volume rose by 121%. Later that month, the government of Ukraine announced that it would mint 54 non-fungible tokens as a financing initiative, under the title “Meta History: Museum of War” – the first NFT-based “war bond”.
