New report from Chainalysis: Eastern Europe

Chainalysis, the blockchain data platform that provides software, services, and research to government agencies, exchanges, financial institutions, and insurance and cybersecurity companies in more than 70 countries, has released the results of its report on Eastern European crypto adoption as part of the 2022 Geography of Cryptocurrency Report Index.

Chainalysis: crypto adoption in Eastern Europe

A new report came out these days, from the specialized blockchain and crypto research and analysis company Chainalysis, covering the cryptocurrency market in Eastern Europe. This is a market that represents 10% of total cryptocurrency transactions, with $630.9 billion in value received on-chain between July 2021 and June 2022.

According to data from the Chainalysis report, Eastern Europe’s comparative role in the world’s largest crypto ecosystem has remained surprisingly consistent in recent years, generally hovering around 10%. Other regions, however, would have seen more volatility.

The report by Chainalysis states:

“In prior research, we’ve looked a lot at Eastern Europe’s role in cryptocurrency-based crime — especially Russia. In particular, we’ve historically seen an outsized amount of ransomware and crypto-based money laundering in Eastern Europe, with the latter supported by a large ecosystem of risky cryptocurrency businesses. Some of those businesses, such as the OTC desk Suex, have even been sanctioned by the U.S. Treasury Department in response to this activity over the last year. Nevertheless, risky and illicit activity is still prominent when we look at Eastern Europe’s on-chain activity: High-risk exchanges – those with no or low KYC requirements – account for 6.1% of transaction activity in the region, compared to just 1.2% for the next-closest region.”

The issue of criminal and illicit activity appears to have not grown substantially, despite the outbreak of the conflict in Ukraine, a country that has always been very active in the cryptocurrency sector, which according to the Global crypto adoption index ranks third among countries in the world with the highest adoption of digital assets (while Russia ranks ninth).

Chainalysis analysts have certified that about 18% of all cryptocurrency received from Eastern Europe, comes from addresses associated with risky or illicit activities, more than any other region.

Cryptocurrencies and war in Ukraine

But a rather important aspect highlighted by the report is that, again with regard to the conflict in Ukraine, cryptocurrencies have shown due to their low liquidity, that they do not lend themselves to being an appropriate tool to evade sanctions imposed by Russia, as some had implied.

The report continues:

“Russia saw transactions grow and shrink within a relatively narrow range over the following months. Ukraine, on the other hand, saw a steady increase in cryptocurrency transfers from the outset of the war through June 2022. It’s possible that Russian users’ cryptocurrency activity was impacted by restrictions placed on them by many services in response to the invasion.”

Movements in hryvnia, the Ukrainian currency, in cryptocurrency spiked a whopping 121% in March, immediately after the outbreak of war, while those denominated in rubles increased over the same period by 35%. 

Tatiana Dmytrenko, a high-ranking advisor to the Ukrainian Ministry of Finance and member of the World Economic Forum’s Digital Resources Task Force, interviewed by Chainalysis Advisors to comment on this data, referred to the issue related to the currency controls implemented by the Ukrainian government:

“Due to the introduction of martial law in Ukraine, the Ukrainian Central Bank imposed restrictions on currency cash transactions, such as buying dollars or euros.”

The report analyzed, also with the support of experts in the field, the role of cryptocurrencies for Russia after its removal from the SWIFT international payments system. According to some experts, some Russian companies have already started using cryptocurrencies for their international payments, citing China and Iran as the main Russian partners for these types of transactions.

This would also be evidenced by the fact that, in January, stablecoins accounted for 42% of the volume of transactions primarily on Russian services. That share skyrocketed to 55% in February and 67% in March after the invasion.