- Russia and Ukraine witnessed the worst declines in crypto usage in all of Eastern Europe.
- Russia’s use of international crypto exchanges has halved in the past year.
The war between Russia and Ukraine has dealt a blow to the global economy, affecting supply chains and sending prices, especially in oil and food markets, to unprecedented levels. Eighteen months after the conflict began, the world was still reeling from the financial fallout.
Like traditional markets, the war had far-reaching consequences for the crypto-economies of the two warring parties. The two countries, which are the two largest crypto markets in Eastern Europe, witnessed a sharp decline in usage over the past year.
The crypto costs of war
Russia and Ukraine saw the volume of crypto transactions fall by $35.8 billion and $41 billion respectively, marking the worst declines across Eastern Europe, data showed.
Source: Chain analysis
Furthermore, the conflict prevented the general public from adding cryptos to their portfolios. Ukraine and Russia have fallen two and four places respectively in the recently released figures 2023 Global Crypto Adoption Index.
Russia is fighting economic sanctions
Russia has been hit hard by economic sanctions since it invaded its western neighbor. NATO powers have imposed enormous costs to deprive the Russian war machine of resources.
The scope of sanctions was also extended to cryptos. The European Union (EU) has a general prohibition about offering crypto services to Russian residents and entities last year. As a result, numerous foreign trading platforms popular with the Russians were forced to suspend their services.
Recently, Binance, the world’s largest crypto exchange, took place [BNB] sold its Russian operations and left the country. The move was most likely a response to allegations that Binance had violated sanctions by allowing Russian users access to the exchange.
The impact of the sanctions was striking. Since the war, Russia’s use of international crypto exchanges has halved. On the other hand, transaction volume on local crypto exchanges has been steadily increasing.
Chainalysis noted in the report,
“We believe the restrictions are hurting the Russian market, along with the same economic headwinds affecting crypto users in other parts of the world.”
Source: Chain analysis
The restrictions on the use of cryptocurrencies can also be viewed from a different lens. Most crypto backers agree that protecting wealth during periods of war or economic turmoil is one of the most important use cases of cryptos. Restriction therefore worsens their misery by cutting off safe havens.
This was clearly evident during Russia’s Wagner Uprising, when many Russians took refuge in stablecoin Tether. [USDT] to protect their savings.
Ukraine provides interesting insights
According to Ukrainian officials and government fundraising sites, crypto funds were widely used to supplement the war effort. Millions of dollars worth of cryptos were flown to the war-torn country for purchase military weapons And medical supplies.
According to an earlier report from Chain analysisAs of February 2023, donations worth nearly $70 million were transferred to the Ukrainian government.
This humanitarian aspect highlighted the value of digital assets in times of crisis. However, as the war continued, different types of challenges arose.
The costs to the Ukrainian economy have been devastating, especially the damage to the country’s infrastructure and most productive industries.
According to official figuresUkraine’s gross domestic product fell by 29% in 2022. The economic hardships prompted millions of people to flee to other parts of Europe, negatively impacting crypto transactions, as seen previously.
Ukraine’s first cryptocurrency exchange, Kuna, moved to Europe in the post-war period. Anna Voievodina, chief legal counsel of Kuna Exchange, said and Chainalysis quoted:
“Since the Ukrainian economy collapsed and cities were destroyed, people have been moving away. Now the Ukrainians living under the European legal order are using financial instruments that they did not use before.”
Due to exposure to a much more advanced European crypto market, many residents embraced cryptos like never before. Furthermore, crypto remittances sent to Ukraine saw a significant increase in 2023.
Source: Chain analysis
Moreover, the total number of transactions in Ukraine has increased, even though major crypto transfers may have suffered, as evidenced by the decline in transaction volume. This implied that retail usage in the country was still strong.
It remained to be seen how this new behavior would impact crypto adoption in Ukraine once the clouds of war cleared and peace returned.