‘High Risk’ Crypto Activity Widespread in Eastern Europe: Chain Analysis

Crypto activity determined as “high risk” is more prevalent in Eastern Europe than in any other region amid the Russia-Ukraine war, according to a Thursday report from blockchain analytics firm Chainalysis.

Eastern Europe is the fifth largest regional cryptocurrency market, according to Chainalysis, with USD 630.9 billion in value received on-chain between July 2021 and June 2022. It represents 10% of global transaction activity in the period studied, which is relatively in line with previous appearances.

About 18% of crypto activity in Eastern Europe is associated with “risky or illegal” activity, according to the report, representing the highest rate of any region measured by Chainalysis. However, it is primarily from transactions considered risky, with the bloc’s share of illicit transactions below sub-Saharan Africa and Latin America and on par with North America.

A significant driver of the region’s high level of risky activity is the prevalence of “high-risk exchanges”, which have little or no know-your-customer (KYC) standards. The report said such exchanges represent about 6% of transaction activity in the region, compared to 1.2% for the next closest region.

In Russia, Eastern Europe’s largest country, sanctions in response to the Ukraine invasion restrict citizens from accessing many international crypto services and may push them into riskier services. The EU further tightened restrictions on Russian crypto transactions last week, banning all crypto-active wallets, accounts or custody services from the country.

Russia’s cryptocurrency transactions, both in crypto-to-crypto and crypto-to-fiat currency, increased in March after the Ukraine invasion, the report said. An anonymous expert who has worked with financial intelligence units in Eastern Europe told Chainalysis that oligarchs and ordinary people were looking for ways to get money outside of Russia or withdraw money.

As restrictions were put in place in the months following the March surge, crypto transactions measured by Chainalysis have declined in Russia. During the same time, Russians moved to new exchanges in countries such as Kazakhstan and Georgia, Chainalysis’ source said.

Russia has already seen an outsized amount of ransomware and crypto-based money laundering activity historically, according to previous research by Chainalysis.

Ukraine also saw increases in crypto-related transactions after the war began in March, according to the report. But Ukraine’s crypto activity involving the national currency hryvnia later declined after March.

Tatiana Dmytrenko, a senior adviser at Ukraine’s finance ministry quoted in the Chainalysis report, said the data was likely due to a gradual easing of restrictions on foreign exchange transactions, such as buying dollars or euros, which took effect in March.

However, Ukraine has seen a steady increase in crypto-to-crypto transactions since March. Ukraine ranked third in Chainalysis’ 2022 Global Crypto Adoption Index, which measures grassroots crypto adoption by citizens.