Ukraine Cryptocurrency Ban; What's Happening?

Is there a Ukraine cryptocurrency ban or not?

The National Bank of Ukraine has implemented restrictions regarding its cryptocurrency transactions to limit the flow of money out of the country as it continues to operate under martial law.

Since the Russian invasion, $1.7 Billion was transferred out of banks in Ukraine in March and a further $900 million so far in April.

The ban is a temporary measure. It states that Ukrainians who want to buy cryptocurrencies will have to use a foreign currency other than UAH. The total monthly limit of purchases is limited to UAH 100,000 ($3,300). The National Ukraine Bank sees crypto purchases, deposits via electronic wallets, and virtual asset purchases as quasi-cash transactions. However, regular payments made abroad and locally for goods and services do not fall under the bracket of new restrictions.

The National Bank of Ukraine believes the changes will help improve the country's fortune in the foreign exchange market. This is important for further reductions in restrictions, which will take some pressure off international reserves in Ukraine. The restrictions have raised some questions as the government of Ukraine was actively working to legalize cryptocurrencies a few days prior.

Before the invasion of Ukraine by Russia on February 24, the country was trading more cryptocurrencies than fiat. Just six days before, a bill was passed legalizing cryptocurrency and putting its regulation under the governance of the National Commission on Securities and Stock Market.

Since the war started, Ukraine has used cryptocurrencies to raise capital for the war effort. The country announced on February 26 that it would accept donations in the form of crypto, with links to two crypto wallets provided for them to receive Bitcoin, Ether, and Tether. According to a leading analytics firm within the crypto space, this led to $63.8 million being raised with more than 120,000 crypto asset donations. But as the war continues to rumble on, Ukraine’s national bank believes that if large amounts of cash leave the country, it will put significant pressure on its currency. It wants to avoid what happened to the Russian ruble shortly before the war began.

There, food prices went up considerably, prices of imported goods skyrocketed, with some foreign-made cars more than doubling in price, and there was a lack of imports. An economist from Gazprombank predicted that annual inflation will stand at 27% by the middle of 2022. However, the ruble has returned to pre-war levels in response to sanctions from the West.

NBU believes the move to limit cryptocurrency transactions is important, even though the FX market has been balancing over the past few months. It fears that large volumes of foreign currency purchased by banks seeking international settlements will negatively affect the currency. The World Bank predicts that Ukraine's GDP will fall by 45% this year.