Ukraine Leads Global Crypto Adoption, Says Chainalysis

Developing countries are driving retail crypto adoption, and Ukraine is leading the way, according to a new report by blockchain analytics firm Chainalysis.

Ukraine, Russia and Venezuela are the top three countries for cryptocurrency adoption, Chainalysis said in its Global Cryptocurrency Adoption Index, published Tuesday as part of the firm’s upcoming report on global trends in crypto usage.

The US and China continue to deliver the largest transaction volumes, but putting aside the largest “whale” crypto holders, Ukrainians, Russians and Venezuelans are the most active retail users of digital currencies, according to Chainalysis’ ranking. They are followed by China, Kenya and the USA

Chain Analysis measured crypto adoption using on-chain cryptocurrency value received by a country, on-chain value transferred, number of on-chain cryptocurrency deposits, and peer-to-peer trading volume. The data was weighted by the purchasing power parity per capita and number of internet users in each country.

The list of “winners” may seem surprising, but only at first glance, said Kim Grauer, head of research at Chainalysis. For example, Russia has a history of using e-payment services, Grauer explained. People are used to digital payments, so the transition to cryptocurrencies can be a bit more seamless.

Ukraine, for its part, has “a really tech-native population,” she added, and both countries also have a very active startup environment. There is also more cybercrime activity in Eastern Europe than in other regions, which may contribute to the busy crypto market.

As CoinDesk previously reported, Ukraine is a hotbed for cryptocurrency adoption, with a tech-savvy population and crypto-curious government currently working on future regulations for the industry in collaboration with the local blockchain community.

The patterns for crypto usage vary from country to country. Ukraine and Russia actively use crypto to send money for business-to-business and cross-border transactions, avoiding cumbersome banking regulations. In Venezuela, people use crypto more for savings and peer-to-peer trading.

“People in Venezuela don’t necessarily want to go into cryptocurrencies because it’s interesting or a cool thing to do, but because they’re looking for a stable source of value,” Grauer said. She added that there is also an active remittance market between Venezuela and Argentina.

In Russia, Venezuela and Ukraine, crypto adoption is driven more by retail investors, while the crypto whales in China and the US are the biggest drivers of growth, Grauer said.

“When we look at the share of transfers over $100,000, we noticed that the share of overall activity in North America that is professional has grown over the past year,” she said.

Out of the three nations, Ukraine may be the most surprising leader because the country largely flies under the radar of the global crypto community. Located in Eastern Europe and with a population of 42 million, the country has both an unstable economy and tech-savvy citizens, which seems to be a good recipe for crypto usage.

Ukraine’s Ministry of Digital Transformation said there are several reasons for crypto’s popularity among Ukrainians: a large blockchain developer community and tech-savvy population in general, cumbersome regulations for export and import transactions and the absence of the stock market in the country. All this encourages people to try digital assets, the Ministry said in a blog post.

Michael Chobanyan, founder of Ukraine’s first crypto exchange, Kuna, said small businesses, which use crypto to circumvent foreign exchange regulations, can turn over $5 million worth of crypto every week, according to a loose estimate. They mostly pay for imports from Turkey and use tether (USDT) in 90% of transactions, he added.

There are also many retail crypto-investors in Ukraine, Chobanyan believes. Kuna sees about $800,000 in retail crypto transactions daily, he said. And that’s just a fraction of the overall retail volume, given the popularity of exchanges like Binance and EXMO, as well as numerous cash-over-the-counter traders in the country.

Retail investors are interested in crypto, as there are not many other options for savings and passive income in Ukraine. The economy is small and there is no national stock market. Banks often fail and investing in real estate is too expensive for most people, Chobanyan said.

Crypto, on the other hand, has a low barrier to entry, easier compliance requirements and is more secure than just holding cash.

Alex Bornyakov, the deputy minister for digital transformation of Ukraine, believes that individuals, not businesses, are the most active crypto users in the country.

“They use cryptocurrencies for small investments and trading,” he explained.

It’s an educated guess so far, he admits, as there are no official statistics for cryptocurrency usage in the country.

Crypto, like US dollars, is a hedge against the volatility of the national currency, Ukrainian hryvnia, and against the general instability of Ukraine’s political and economic situation, said Ukrainian Bitcoin Core developer Hennadii Stepanov, via hebasto.

“Our situation is similar to that in Iran and Venezuela,” he said, adding: “Unlike gold, bitcoin is available to everyone.”

However, adoption is limited, says Gleb Naumenko, another Bitcoin Core developer with Ukrainian origins.

“Many of my friends know someone who has invested [in crypto]. I see great interest, but the technology is still lagging behind. It’s hard to use it, and it scares people away,” Naumenko said.

According to Binance’s head of Russia and Ukraine, Gleb Kostarev, Ukraine is not the biggest volume driver for Binance, but it is nevertheless one of the key markets for the exchange. The firm is constantly working on new fiat ramps for the Ukrainian hryvnia and is actively working with the Ukrainian government on future crypto regulation, Kostarev added.

For both Ukraine and Russia, the COVID-19 pandemic has become a driver for adoption as the pandemic has hit both economies hard, Kostarev said. Isolated at home, people turned to crypto as a new source of income.

“The macroeconomic situation in Ukraine remains complicated, and during the coronavirus pandemic it has become even worse. The government is working on new ways to stimulate the economy, while the young population must look for new sources of income. This is one of the main reasons for Ukraine’s interest in crypto,” Kostarev said.

Kyrylo Chykhradze, product director for analytics platform Crystal Blockchain, said Ukraine’s registered crypto businesses have processed only $300 million in bitcoin since 2015, a fraction of the $150 billion that passed through U.S. bitcoin markets over the same period.

However, the low numbers can be partially explained by the fact that Ukraine-based and Ukraine-oriented crypto businesses often chose other jurisdictions to register, so officially they are not in Ukraine.

“There is still a lack of legal grounding on the digital asset front, which has led to local crypto businesses targeting other locations (such as the UK or Estonia) to operate from,” Chykhradze said. He added that the government’s efforts to bring crypto businesses into the legal field could change the situation in the future.

It becomes difficult to quantify crypto activity by country, as individual bitcoin wallets are not tagged with geographic locations. Chainalysis recognizes that geographic data is difficult to get right if you’re just looking at on-chain transactions, so the firm requested data directly from global P2P trading platforms, namely LocalBitcoins and Paxful, and spoke to experts on the ground, Grauer said. said.

To see activity in specific countries, Chainalysis mostly looked at web traffic on the crypto trading, merchant, gambling and other services that SimilarWeb uses, Grauer explained. If that data was not available, transaction data was analyzed using time zones, most popular fiat currency pairs, language options used and the location of the headquarters of the services.

Chainalysis also weights the numbers against each country’s purchasing power parity so that the poorer countries with more volatile currencies can still rank high if they are active in retail crypto transactions (transactions worth less than $10,000). This means the countries with the highest ranking are not necessarily the ones with the largest crypto volumes. Rather, they are the countries where people put a larger portion of their assets into cryptocurrency.

“Countries have different populations and different GDPs, so if you just do index without weights, it’s all skewed towards China and the US,” Grauer said.

A country’s position in the ranking is not determined by any single factor, Grauer said.

“Ukraine and Russia are not number one in any of the submetrics, but they are in the top 10 according to the [crypto] value received and the number of crypto deposits, and they are performing well across the board,” she said.