Cryptomarket activity surges in Eastern Europe as Russians seek ways to protect their assets amid Ukraine war sanctions.
Despite Russia’s war against Ukraine, Eastern Europe’s cryptocurrency market remained “surprisingly consistent,” blockchain research firm Chainalysis said in a new report.
The region represented just over 10% of the global cryptocurrency market but was one of the world’s most stable, the report noted.
It also noted “an outsized amount of ransomware and crypto-based money laundering” in Eastern Europe, claiming that 18.2% of all crypto transactions in the region could be associated with risky or illicit activity – more than anywhere else.
When taken separately, the data shows illicit activity to be on par with the Americas and dwarfed by Sub-Saharan Africa. High-risk behavior, however, stands out. As Russia invaded Ukraine, the nationals of both countries turned to crypto to protect their assets.
Subsequent EU sanctions that restricted Russian access to European services partly explain the high-risk crypto behavior of Russian users, who turned to the UAE and Turkey, as well as Kazakhstan and Georgia, to get their money out of Russia.
“All four countries saw spikes in web visits to Russian cryptocurrency services after the war began in February,” Chainalysis said.
Given Russia’s “historical embrace of cryptocurrency for both licit and illicit uses,” it was expected that Russians would resort to cryptocurrency to evade sanctions, Chainalysis said.
While “cryptocurrency markets likely aren’t liquid enough to support mass scale, systemic sanctions evasion,” this could change, Chainalysis suggested.
The Russian central bank’s recent decision to legalize the use of cryptocurrency for cross-border payments and international commerce indicated that it was going to play a bigger role in Russia’s foreign trade, it said.
“Crypto-for-imports schemes would open up many questions about how to make sanctions against countries like Russia more effective,” Chainalysis said.
EU’s latest round of sanctions includes a total crypto ban against Russia, which will further impact its crypto market. Russia ranks 9th in Chainalysis’ Global Crypto Adoption Index, while Ukraine is 3rd, behind only Vietnam and the Philippines.
In March, immediately after the invasion, cryptocurrency use soared in Ukraine as it did in Russia, according to the data by Chainalysis.
“Trends diverge after that though. Russia saw transactions grow and shrink within a relatively narrow range over the following month,” it said.
“Ukraine, on the other hand, saw a steady increase in cryptocurrency transfers from the outset of the war through June 2022,” the report noted, which it attributed to the Ukrainian central bank’s decision to impose restrictions on currency cash transactions.
Currency controls were relaxed in July, when cryptocurrency trade in Ukraine declined, according to Chainalysis.
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