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Ukraine’s parliament Verkhovna Rada passed the law that legalized digital assets, including crypto, last month. President Zelensky has now signed the Law “On Virtual Assets”, thus fulfilling the final requirement for establishing the legal status of cryptocurrencies in the country.
The law enables Ukrainian and foreign crypto exchanges to operate legally in the country. The closer government’s monitoring of their activities will be introduced to provide additional guarantees to their clients. In addition, new taxation regulations will allow Ukraine’s government to obtain a stable flow of tax revenues, contributing to higher financial stability. The law also allows banks and other financial institutions to open accounts for crypto companies, resulting in the better integration of traditional financial and cryptocurrency operations. Ukraine’s officials suggest it is a highly important step towards the formation of a developed virtual assets market in the country. Although Ukraine does not recognize Bitcoin and other cryptocurrencies as legal tender, it provides the required legal protection for crypto holders who become able to freely invest in cryptocurrencies and create digital portfolios. Ukraine may strengthen its positions as one of the major crypto hubs in Europe, thus distinguishing it from other East European countries with more conservative policies.
According to the Global Crypto Adoption Index, Ukraine is ranked fourth in the world in terms of cryptocurrency use by its population. While the initial adoption of Bitcoin, Ethereum, and other cryptocurrencies was largely caused by high inflation and financial risks present in Ukraine, the recent regulatory changes may create additional stimuli for the crypto market development. In particular, many crypto investors may be interested in legalizing their wealth and virtual assets while paying comparatively low taxes. Crypto holders from neighboring countries, especially Russia and Kazakhstan, may redirect their crypto funds to Ukraine in order to avoid the prosecution and fiscal pressure of their national governments. If Ukraine’s regulations are effectively enforced, the crypto and financial sectors may enjoy rapid development in the following months. The plausible short-term effects of this policy refer to the generation of higher fiscal revenues for Ukraine that may be critically important during wartime. The major long-term effects of the Law “On Virtual Assets” include the establishment of a strong crypto market in the country that combines the major productive efforts of private investors, financial intermediaries, banking institutions, and Ukraine’s government.
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