The cryptocurrency industry in Ukraine seems to be heading south after the National Bank of Ukraine (NBU) came out to warn the citizens about the risks associated with this nascent digital asset.
The NBU clarified that Bitcoin and other cryptocurrencies are neither cash, nor currencies as such, nor a means of payment, nor electronic money. Some of the major functions of money include a medium of exchange, a store of value (purchasing power), the basis of credit, a unit of account, a measure of value, and a standard of deferred payment.
But according to the point of view of Kateryna Rozhkova, First Deputy Governor of the NBU, cryptocurrencies including BTC, Ethereum, Tether, Binance Coin, Litecoin, etc., are virtual assets that are not money, since they do not perform the basic functions of money particularly settlements and savings.
That's the point where Kateryna is warning Ukrainians to distance themselves from this new form of assets. The deputy governor warned that holders of cryptocurrencies risk savings in this form, as their price can fluctuate greatly. And this creates risks of spreading manipulations, including the creation of financial pyramids.
Most people who follow events in the digital currency community will agree that cryptocurrency is quite controversial when it comes to storing value. A few weeks ago, Bitcoin, the largest crypto asset by market, was trading above $64,000. But currently, the coin is changing hands at around $30k, meaning that the prices negatively fluctuated by almost a half.
The coin collapsed sharply following the criticism from the CEO of Tesla Elon Musk of the BTC mining not being environmentally friendly, as well as the ban from China and Iran on the mining and trading activities related to cryptocurrency, as per the report by CoinIdol, a world blockchain news outlet.
However, some experts in the industry including Mike McGlone predict that the price of Bitcoin will hit $100k soon. Therefore, the sharp falls and upturns of the crypto-asset exchange rate that have been going on in recent past days have again drawn much attention from the NBU to this nascent industry.
Additionally, Kateryna stressed out that there is a risk of using Bitcoin and other crypto assets to launder money, trade drugs, avoid taxation and violate currency laws. Violation of any financial laws is criminal in Ukraine. For instance, a money launderer can be sentenced to a maximum of 14 years, using drugs in public can make someone be imprisoned for over three years in Ukraine, and many legal actions and penalties can be applied to criminals for violating financial laws.
There is also a risk of overflowing part of bank deposits into BTC and other digital currencies, a thing that greatly threatens the monetary stability of the banking system plus the monetary system as a whole.
Generally, the NBU believes that the widespread adoption and use of cryptocurrencies may harm monetary policy because of the risk of parallel money circulation that isn't affected by the country's central bank. Hence, Ukraine may lose its monopoly on the creation of money, and the central bank won't be able to perform its main function of guaranteeing the stability of the currency of the country.
Nevertheless, the industry seems to progress in the country. Back in 2020, Ukraine was leading the Eastern European countries in cryptocurrency adoption, having outperformed Russia. Its government also sees potential in mining digital money. The country’s Ministry of Energy even planned on using the energy surplus for money to decrease the budget deficiency. However, so far the plans were not implemented in practice.
But still, Ukraine makes every effort to boost the adoption of innovations including blockchain and cryptocurrency. In autumn 2020, the Ministry of Digital Transformation launched an educative TV series on blockchain to spread awareness about the technology among the country’s population.
Besides efforts in boosting crypto adoption, Ukraine also works on developing digital hryvnia which will become the national CBDC. In early 2021, the government announced a partnership with Stellar Foundation to develop the national coin. However, presently, no detailed plans were revealed as on the development peculiarities and launch date.
Therefore, it seems obvious that Ukraine is open to cryptocurrency development and adoption. Despite the attempts to regulate the industry to prevent illegal activity within it, the government generally welcomes the industry and its growth within the country’s borders.