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The year 2023 has been a noteworthy chapter for the Ukrainian cryptocurrency market, witnessing pivotal events that have shaped its trajectory. From legislative developments to challenges faced by crypto exchanges, here's a comprehensive overview of what transpired.
In cryptocurrency acceptance, Ukraine reaffirmed its global standing, securing the 5th position in the Chainalysis world ranking. This consistent prominence is not new for Ukraine, having topped the list in 2020. The country's crypto community is expanding, evidenced by a 26% increase in exchange clients and over 100,000 active users on the Trustee Plus application. The Conference held in Kyiv drew over 1,000 crypto enthusiasts, underscoring the vibrant crypto ecosystem.
However, despite these positive indicators, Chainalysis analysts noted a decrease in cryptocurrency transactions throughout the year. Economic challenges arising from the ongoing war and the migration of residents and businesses, including crypto platforms, to other parts of Europe contributed to this decline.
March 2023 saw several cryptocurrency platforms temporarily cease operations with hryvnia bank cards in Ukraine. This move was attributed to the government's crackdown on gambling and tax evasion. Fiat channels, including bank card transactions, were halted nationwide to combat illegal activities, impacting not only traditional financial operations but also cryptocurrency exchanges.
As of the year-end, these restrictions persisted, prompting concerns from the Ministry of Digital Development about the stagnation of Ukraine's crypto sector. Urgent regulatory measures were emphasized to revitalize the industry and lift the suspension of fiat gateways with service providers.
Despite the previously enacted "On Virtual Assets" law, its implementation awaited amendments to the Tax Code related to cryptocurrency transactions. In November, the Verkhovna Rada introduced two options for taxation and market regulation, signaling the government's commitment to refining the legal framework.
In August, the Verkhovna Rada adopted a bill recognizing virtual assets as digital objects, granting users the ability to protect their cryptocurrency rights, including inheritance and legal recourse in case of theft. However, two bills presented in 2023 reflected diverging approaches. Draft law No. 10225, submitted on November 7, proposed amendments to the existing law, prescribing a tax rate of 18% personal income tax and an additional 1.5% military tax on individual crypto transactions. The bill designated exchanges as tax agents for their clients.
This proposal faced opposition, leading to an alternative document submitted on November 17. The second bill suggested a phased tax increase over eight years, starting at 5% for the first three years, escalating to 9% for the subsequent five years, and stabilizing at a general tax rate of 18%. Additionally, it recommended excluding the National Securities and Stock Market Commission from major market regulatory roles.
As the year concluded, Ukraine found itself with two alternative bills on market regulation, leaving the hope for consensus on the legislation's wording before the end of 2024.
Beyond legislative dynamics, 2023 saw Ukrainian officials undergo training on blockchain analysis tools, demonstrating a proactive stance in understanding and regulating crypto transactions. The Verkhovna Rada adopted a law on issuing an NFT stamp, showcasing the country's interest in emerging technologies. Studies on Web3 industry challenges and prospects were presented, along with a roadmap for regulating the artificial intelligence sector.
In summary, while 2023 brought forth crucial developments and events for Ukraine's crypto market, the absence of clear regulatory frameworks poses a significant impediment to the sector's comprehensive growth. The upcoming years will likely witness concerted efforts to bridge this regulatory gap and propel the crypto industry in Ukraine toward a more robust and sustainable future.
If you have questions regarding the cryptocurrency market in Ukraine, please contact us. Blockchain and the crypto industry are one of the main areas of Avitar’s work.
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Serhii Floreskul
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Violetta Loseva
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