Under the Russian-Ukrainian war, what are the changes in the Eastern European crypto market?

Written by Chainalysis

Compiled by Luffy, Foresight News

! [What are the changes in the Eastern European crypto market under the Russia-Ukraine war?] ](https://cdn-img.panewslab.com//panews/2022/10/21/images/264cbdd51448e78292e5f09103834509.)

This article is excerpted from Chainalysis 2023 Cryptocurrency Geography Report, which will be released later this month.

Eastern Europe is the fourth largest cryptocurrency market we studied, with $445 billion worth of cryptocurrencies accepted on-chain in the region between July 2022 and June 2023, representing 8.9% of global trading activity during the study period.

! [What are the changes in the Eastern European crypto market under the Russia-Ukraine war?] ](https://cdn-img.panewslab.com//panews/2022/10/21/images/10a408235ab14ec4d63638e213473980.)

! [What are the changes in the Eastern European crypto market under the Russia-Ukraine war?] ](https://cdn-img.panewslab.com//panews/2022/10/21/images/2029d1f65724b485f754ec7e5d82bff3.)

Cryptocurrency usage has declined in most parts of the world over the past year, and Eastern Europe is no exception. Transaction volume in the region fell by 22%, in line with the downward trend worldwide over the same period. While economies in other regions are showing signs of recovery from the crypto winter, Eastern Europe is still suffering from the economic impact of the Russia-Ukraine war, which we’ll discuss in more detail later. Both countries are the largest cryptocurrency players in the region, both in terms of transaction value and mass adoption.

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Most of the transaction volume in Eastern Europe is made up of institutional-scale transfers, while centralized exchanges and DeFi protocols in the region are relatively evenly distributed in terms of on-chain transaction volume.

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However, an interesting trend emerged when we segmented cryptocurrency activity in Eastern Europe by transaction size over time. Despite three spikes during the study period, large institutional trading volumes have been steadily declining. On the other hand, despite a period of volatility, smaller institutional trading volumes have remained relatively stable, while professional-scale trading volumes have been higher than both. Retail trading volumes also remained stable. All in all, the data shows that while the region’s top cryptocurrency users have reduced their activity during the bear market, the rest are still participating in the asset class.

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As we’ve seen elsewhere, the biggest volatility in cryptocurrency activity in Eastern Europe coincided with market turbulent events, such as the FTX crash at the end of 2022, and the closure of Silicon Valley Bank (SVB), Silvergate Bank, and Signature Bank in March. Transfer size data shows that institutional investor behavior changed the most during this period.

A notable positive trend in the region is DeFi. Eastern Europe was one of only three regions to see growth (up 3%) in DeFi activity.

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The reasons for this rise are complex, but regional regulations and uncertainty over turbulence in the cryptocurrency market may have contributed to it. In the past, we have observed that investors turn to DeFi when there is a problem with centralized exchanges or a market crisis, possibly because the non-custodial nature of DeFi gives users greater control over their funds.

The adoption of cryptocurrencies has remained stable even as prices have fallen

When it comes to cryptocurrency adoption, Ukraine and Russia are often mainstays on the world stage. While Ukraine and Russia remain the regional leaders in terms of trading volume and mass adoption, Ukraine and Russia also saw the largest year-over-year declines in cryptocurrency trading volume among Eastern European countries, at $35.8 billion and $41 billion, respectively. Mass adoption has also declined compared to other countries, with Ukraine and Russia dropping two and four places, respectively, in our global cryptocurrency adoption index.

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This decline may have been driven by the ongoing war between the two countries. Russia’s decline may be partly due to U.S. economic sanctions, the European Commission’s blanket crypto ban on Russia last fall, and a general decline in the willingness of businesses to do business in Russia. One of the proofs is that Russian usage on the world’s largest international exchanges has fallen by more than 50% since the pre-war months, as we can see in the index below. This may be partly due to the restrictions imposed on Russian users and banks by some international exchanges due to the war. At the same time, we have also seen an increase in trading volumes on exchanges that mainly serve Russia, which have not introduced such restrictions.

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Although Russia’s trading volume on international exchanges is still higher than that of local exchanges overall, the opposite adoption trend suggests that at least some Russian users are likely to switch to local exchanges. But overall, we believe the restrictions are hurting the Russian market, and the same economic headwinds are affecting crypto users in other parts of the world.

In Ukraine, on the other hand, we believe that the decline in trading volume is more due to the extreme economic difficulties caused by the war, as well as the migration of many Ukrainian residents and businesses, including crypto platforms, to other parts of Europe.

Kuna is one of the Ukrainian cryptocurrency businesses that relocated due to the war. This year, the company moved its headquarters to Lithuania and shifted its focus to the European market. The company has several banking customers there and has developed Kuna Pay, a solution that provides B2B access to crypto payments. Kuna is also developing and obtaining the required licenses for staking products and creating cryptographic custody solutions that Ukrainian banks can use once regulations allow. Discussing these developments, Anna Voievodina, chief counsel at Kuna Exchange, said, “The war keeps us moving faster.”

She went on to say that in Ukraine, the use of cryptocurrencies is complicated. On February 17, 2022, the Ukrainian parliament passed cryptocurrency regulations, and the following week, Russia invaded the country. In the following months, despite the influx of millions of cryptocurrency donations into Ukraine to support the fight against aggression, several war-related interventions affected the use of cryptocurrencies. For example, the National Bank of Ukraine (NBU) banned the use of Ukrainian hryvnia to buy cryptocurrencies in order to “prevent the unproductive outflow of capital from the country” and save the national currency. Restrictions have since eased, and Voievodina said that Ukrainians have become more interested in cryptocurrencies and are learning about the opportunities.

Despite the damage the war has caused to Ukraine and its crypto ecosystem, some positives have emerged. These refugees are considered EU residents as the EU extends the protection period for people fleeing war-torn areas until 3 March 2025. Taking advantage of these rights, many are taking new actions, such as using crypto platforms governed by EU regulations, which are more advanced than in Ukraine.

Voievodina said: “Due to the economic downturn in Ukraine, towns are being destroyed and people are leaving. Now those Ukrainians living under the European legal order are using financial instruments that they did not use before. People are looking for new options and are no longer as afraid of KYC as they used to be.” She explained that these Ukrainians are now using cryptocurrencies for everyday purposes, such as saving, donating, and sending money. In fact, we estimate a significant increase in remittances to Ukraine last year. The chart below shows the growth of small transactions with amounts comparable to the size of payments typically used for remittances.

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Data on the number of individual cryptocurrency transfers (not just transaction volume) also shows that cryptocurrency usage is consistent in Eastern Europe. Although transaction volumes in Eastern Europe have declined year by year, the number of transfers has remained consistent in almost all places except Russia, and even increased in places such as Ukraine and Poland. This suggests that residents of these countries are still using cryptocurrencies at roughly the same pace.

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Even in Russia, where the number of personal transfers has declined, the decline is small in proportion to the decline in transaction volume, at 12.8% and 20.4%, respectively. The above data shows that Eastern Europeans still benefit from cryptocurrencies and use them at similar frequencies as before, but with less money actually invested in cryptocurrencies.

As for the future growth of cryptocurrencies in the region, Voievodina believes that the increasing integration of Ukrainians with the EU will drive faster cryptocurrency adoption. She also discussed efforts to develop a new bill that complies with MiCA (Regulation of the Crypto Asset Market) and believes that regulation aimed at protecting the consumer market will be beneficial to Ukraine. “Governments recognize that if they do not enact cryptocurrency regulation, they will be excluded from financial market opportunities.”

In Eastern Europe, people are still using cryptocurrencies

Despite the impact of the war, trends over the past year show that cryptocurrency adoption in Eastern Europe is still actively developing and growing. First, we see evidence that Russia has fewer access to international cryptocurrency platforms, which could affect its ability to continue funding wars. Next, the war led to a faster integration of Ukrainians into the European Union, which recently passed its most comprehensive encryption legislation to date. Retail usage is growing despite the global market crisis, and the number of transfers has remained stable or increased in many countries where transaction volume has declined, suggesting that the technology is still providing value to users. DeFi usage has also increased across the region. When the impact of the Russia-Ukraine war wanes, we expect to see more crypto businesses return to Ukraine, as well as the continued development of crypto regulation, both of which will continue to increase cryptocurrency adoption in Eastern Europe.