The cryptocurrency market in Europe has established itself as the fourth largest in the world in terms of trading volume, reflecting sustained growth and growing interest from users and institutional investors.
In fact, Chainalysis, one of the most well-known blockchain analytics firms in the industry, highlighted how institutional adoption and DeFi ecosystem activity have kept Eastern Europe relevant in the global crypto industry.
In your report “Despite war and regulatory questions, crypto adoption grows in Eastern Europe driven by institutions and DeFi activity”The firm stressed that despite geopolitical tensions and the ongoing war between Russia and Ukraine, the cryptocurrency market in the region has shown notable growth, mainly in these two countries.
Although other Eastern European nation states such as Belarus, Moldova and Hungary also saw an increase in the use of cryptocurrencies and digital assets, it is Russia and Ukraine that dominate the sector, taking 1st and 2nd place respectively.
According to the report, Russia saw a cryptocurrency inflow volume of $182.440 billion, followed by Ukraine, which received a cryptocurrency inflow volume of $106.100 billion.
Source: Chainalysis
What factors are driving the use of cryptocurrencies in Europe?
Chainalysis highlighted that the use of cryptocurrencies in Russia and Ukraine is driven primarily by the need of users to preserve its financial stability amidst the uncertainty caused by the war.
In Ukraine, for example, institutional and professional transfers of cryptocurrencies have increased significantly, amidst the active search by individuals for financial safe havens that guarantee their financial stability. In this context, cryptocurrencies offer a way to protect assets, which has increased their adoption and use among professionals and institutions.
On the other hand, in Russia, the general population seems to be using cryptocurrencies as an alternative to access financial services amid the sanctions imposed against the country and its banking and financial entities. According to the report, Russia's activity regarding centralized exchanges or CEXs has remained relatively stable over the past year. However, the country has seen a notable increase in the use of decentralized platforms or DEXs, which allow the use of cryptocurrencies without KYC.
Cryptocurrencies: A safer alternative amid political conflicts
So, cryptocurrencies and digital assets have grown in popularity in Eastern Europe and, mainly, Russia and Ukraine, thanks to their capabilities to offer greater security and stability to users.
In times of political instability, cryptocurrencies have been presented as A haven for those seeking to protect their assets from the volatility of fiat currencies. In addition, cryptoassets allow an access route to financial services, such as remittances, since they facilitate the realization of Fast and secure transactions without relying on traditional financial institutions, which may be subject to government restrictions or collapse in critical situations such as those in these countries.
Specifically, in Russia, cryptocurrencies have also found strong demand due to their ability to operate without the need for intermediaries, which is especially relevant considering the strict sanctions and controls on capital and financial transactions that governments have imposed against the country. As mentioned, decentralized platforms allow users to operate without the need for centralized intermediaries, granting them Greater control over their assets and funds.
The rise of DeFi in conflict regions
The decentralized finance, or DeFi, ecosystem has also gained traction in Russia and Ukraine. In fact, over the past year, Russia has seen a 173,88% increase in the use of decentralized exchanges (DEX), which, according to the firm’s analysts, indicates a significant shift towards these alternative financial solutions with which citizens can access capital and transact even when banks are closed or limited by sanctions.
The open and accessible nature of the DeFi ecosystem has fostered financial accessibility, providing an alternative amidst the political crisis.
On the other hand, in relation to the region in general, Chainalysis highlighted that DeFi activity grew by almost 40% year-on-year, ranking third worldwide, behind Latin America and sub-Saharan Africa.
Source: Chainalysis
The state of NFTs and ERC-20 tokens in Europe
Another cryptocurrency sector that the Chainalysis report addressed was the growth of NFT tokens and the decline in stablecoin usage in Eastern Europe.
Regarding the former, the report noted that NFTs have seen significant growth in countries such as Poland and Ukraine, and that this is primarily due to the growing interest and demand from users for unique and collectible digital assets that offer a form of digital investment and ownership, as non-fungible tokens do. However, despite this growth, Chainalysis also highlighted that the NFT market in Eastern Europe is still relatively small compared to other regions.
On the other hand, regarding the use of ERC-20 tokens, especially stablecoins such as USDT and USDC, the report indicated that these assets have experienced a notable decline in their use in the region. This decline is attributed to the fact that many people are turning to cryptocurrencies as an investment alternative, so they are mainly looking for volatile assets that can generate returns. According to Anna Tutova, CEO of Coinstelegram, stablecoins are mostly used for P2P transactions, as money, a payment method, and an easy tool for cross-border transfers.
“Many people in Ukraine buy cryptocurrencies for investment purposes, so this may be the reason for the reduction in the use of stablecoins”, Tutova commented.
The regulatory situation and growth prospects
Amid the boom that cryptocurrencies and digital assets are experiencing in the region, Chainalysis stated that regulation has also had a significant impact on the continued growth in the adoption of these crypto assets.
Several countries, including Ukraine, which is seeking to join the European Union, are adopting the MiCA framework law, approved to oversee the cryptocurrency market in the region, while countries such as Russia, which is not part of the European Union, are developing their own regulatory frameworks for digital assets.
Despite the conflicts, Chainalysis cited Oleksandr Bornyakov, Ukraine's Deputy Minister of Digital Transformation, as saying that well-designed cryptocurrency legislation could help bring the cryptocurrency industry out of the so-called 'grey zone' and further boost its growth in the region.
Bornyakov told the firm that a clear legal framework for digital assets will enhance both legitimacy and user trust in this emerging market. Therefore, considering the rollout of MiCA and the passage of other specific legislations in other countries, it seems that Eastern Europe has the potential to remain at the forefront of blockchain and cryptocurrency adoption in the future.
