Ukraine legalizes the crypto industry and fully launches the virtual asset market

At around 11 p.m. Beijing time on March 16, the official Twitter account of the Ukrainian Ministry of Digital Transformation announced that Ukraine has legalized the crypto industry. President Vladimir Zelensky formally signed a law "on virtual assets." Overseas and domestic crypto asset companies will operate legally, and banks will open accounts for crypto companies.

The law signed by Zelensky was passed by the Ukrainian Supreme Parliament as early as February 17. The law defines the legal status, classification and ownership of virtual assets, and determines that the market regulator is the National Securities and Stock Market Commission.

"The law has created conditions for Ukraine to launch a legal market for virtual assets." This sentence is published on the official website of the Ministry of Digital Transformation of Ukraine. Virtual assets (crypto assets) have provided substantial assistance to Ukraine, which is deeply involved in the Russian-Ukrainian war.

Since Ukraine began accepting donations of crypto assets on February 26, the country has so far received nearly $100 million worth of crypto asset donations, including Bitcoin (BTC), Ethereum (ETH), US dollar stablecoin (USDT) and even Dogecoin (DOGE), which have supplied the military needs of the Ukrainian Armed Forces.

Before the war, Ukraine had intended to include the crypto industry in its compliance management; during the war, Ukraine unexpectedly received a large amount of assistance from crypto assets. This "two-way rush" opened up another development space for the crypto industry.

Ukraine to fully launch virtual asset market

"Ukraine has legalized the crypto industry - the president signed a law." On the evening of March 16, the Ukrainian Ministry of Digital Transformation released the news on its official website and announced it through its official Twitter account.

According to the announcement of the Ministry of Digital Transformation of Ukraine, the Ukrainian "Virtual Assets Law" signed by President Zelensky defines the legal status, classification and ownership of virtual assets; determines the market regulators as the National Bank of Ukraine and the National Securities and Stock Market Committee; creates conditions for further forming the legal field of the virtual asset market; determines the list of virtual asset providers and their registration conditions; and stipulates the implementation of financial monitoring measures in the field of virtual assets.

In addition, as a regulator, the National Securities and Stock Market Commission will formulate and implement national policies in the field of virtual assets; determine the turnover order of virtual assets; issue licenses to virtual asset service providers; and conduct regulatory and financial supervision of this field.

The announcement also stated that so far, the Ministry of Culture has been developing the legal field in this regard, developing contour laws together with industry representatives. Currently, the Ministry of Finance is also actively revising the Ukrainian Tax Code and the Civil Code to fully launch the virtual asset market. The signed law will take effect from the date of entry into force of the amendments to the Ukrainian Tax Code, which concerns the tax characteristics of virtual asset transactions.

The bill on "Ukrainian Virtual Assets" is actually a revised version. An early version was proposed in September last year, but President Zelensky requested revisions. The revised version was eventually supported by 272 members of parliament and passed by the Ukrainian Supreme Parliament on February 17.

Ukraine officially legalizes crypto industry

Even before the bill was passed, crypto assets had never been classified as illegal in Ukraine, and the country was even a major consumer of crypto assets. According to the analysis of blockchain data service agency Chainalysis in 2020 and 2021, Ukraine's per capita use of crypto assets was the highest in the world in 2020, and it was still the fourth highest in 2021.

Unlike the Central American country of El Salvador, which directly incorporated Bitcoin into its legal currency system, Ukraine has chosen a more moderate approach to accepting crypto assets - incorporating the crypto industry into comprehensive compliance management during the formulation and reform of laws.

As Ukrainian Deputy Prime Minister and Minister of Digital Transformation Hailo Fedorov stated on February 17, the day the bill was passed, “The new law provides additional opportunities for business development in our country. Foreign and Ukrainian crypto companies will be able to operate legally, while Ukrainians will have easy and safe access to the global virtual asset market. Market participants will receive legal protection and have the opportunity to make decisions based on open consultations with government agencies and a transparent mechanism for investing in new asset classes.”

The Russian-Ukrainian War Increases the Development Space of Crypto Industry

The Ukrainian Ministry of Digital Transformation has publicly stated that Ukraine is one of the top five countries in the world in terms of the number of crypto asset users, that there is a dedicated blockchain developer association in the country, and that the number of local crypto startups is growing. The country has been working to promote compliance in the crypto industry since last year.

It can be said that the legalization of the crypto industry in Ukraine was only a matter of time, and the Russo-Ukrainian war may have accelerated this process.

On February 24, the war between Russia and Ukraine broke out. Two days later, Ukraine opened a crypto asset donation channel and announced the donation addresses of BTC, ETH and USDT. Unexpectedly, crypto donations continued to be deposited into the official address. In addition to the types of assets that are publicly accepted, they also include popular public chain assets Solana (SOL), Polkadot (DOT), and even MemeCoin Dogecoin (DOGE).

Two weeks after Ukraine received the donation, on March 11, Alex Bornyakov, the country's deputy minister of digital transformation, said the total amount of donated crypto assets was close to $100 million. It should be noted that the EU's humanitarian aid funding plan for Ukraine is 90 million euros (included in a 500 million euro package), equivalent to $99.366 million.

Cryptocurrency aid is coming to Ukraine faster than fiat currency. In a conference call, Bornyakov said that in the war situation, "the national bank is not really operating, and crypto is helping to perform fast transfers, and the results are almost immediate."

Ukraine’s Ministry of Digital Transformation Announces Purpose of Crypto Donations

On March 12, the deputy minister revealed on Twitter where the crypto donations went, "invested in Ukraine's military needs." According to him, the funds have provided the Ukrainian army with 5,500 bulletproof vests, 500 bulletproof vest plates, 500 helmets, 3,125 thermal imagers and optics, 60 walkie-talkies, as well as 3,427 types of medicines and more than 400,000 packed lunches.

Under Ukraine’s needs, crypto assets unexpectedly played a charitable role as “donations” in this war. Although it has not yet been proven to be a reliable store of value or payment tool, this war is likely to bring development opportunities for the crypto industry.

Michelle Ritter, CEO of Silicon Valley technology company Steel Perlot, cited the example of social media, “The pivotal moment for social media came in 2011, when videos, tweets and other posts from Libya, Egypt, Yemen, Syria and Bahrain sparked the Arab Spring… Now… we find ourselves at a similar inflection point (with cryptocurrency).”

Bridgewater Hedge Fund told clients this week that the Russia-Ukraine war was the first major event in which cryptocurrency became part of the war. "These short-term dynamics are happening at the same time as structural changes in the cryptocurrency market, which we believe will be self-reinforcing as adoption by major institutional investors increases and the surrounding ecosystem deepens."

Today, the crypto industry has been legalized in Ukraine. For example, crypto companies such as exchanges can obtain licenses to operate in compliance with regulations in Ukraine, and banks will open accounts for crypto companies. Ukraine is also an important market for crypto asset consumers. Such conditions are a rare development environment for some participants in the crypto industry.

There are many countries in the world that have brought crypto assets under regulation, and there are also many countries that have adopted a comprehensive ban policy. The crypto industry is destined to develop step by step in many games, and Ukraine's "two-way rush" with the crypto industry has added a new space for this emerging industry. As the country's announcement of the "Virtual Assets Law" stated, "This law is another important step to bring the crypto industry out of the shadows and launch a legal market for virtual assets in Ukraine."