In a desperate move to save its economy Ukraine bans citizens to buy Bitcoin and other crypto with national currency amid martial law.
Just about a month ago Ukraine legalized cryptocurrencies. It was a miracle as for a country fighting for its freedom with demonic Russia. Crypto enthusiasts all over the world welcomed the news and praised Ukraine for rapidly becoming the second El Salvador.
Well, it’s time for a cold shower.
Ukraine’s central bank is prohibiting citizens to buy Bitcoin with the hryvnia (national currency – UAH) in an attempt to prevent what it calls unproductive capital outflows.
What does that mean and can we effectively conclude that there is no more ‘second El Salvador’ in the center of Europe any more?
Why did Ukraine prohibit Bitcoin buys?
The Ukrainian central bank has banned bitcoin and other cryptocurrencies purchases with the national fiat currency. The new rules also target electronic wallet deposits, FX transactions and travel payments.
The bank said the move seeks to prevent ‘unproductive’ capital outflows. It is a bid to preserve the health of the country’s financial market.
Ukraine is under martial law since February 24 when Russia’s invasion began.
More that 5 million people have fled, most of them heading to Poland and other European countries.
Ukraine used to be one the leading country in terms of crypto usage. Almost 12% of the population owned cryptocurrency, which is much higher than in the US (8%).
No wonder Ukrainians are now trying to preserve their wealth buy converting a rapidly devaluing national fiat currency into crypto. Bitcoin and other tokens are much easier to transfer abroad, be it simply taking a flash drive with you or just remembering a password.
And no wonder the government is trying to stop it. Ukraine obviously doesn’t want Bitcoin to become a means to provide capital outflows under martial law.
Until recently Ukrainian could easily buy crypto on any crypto exchange with their bank cards. All the banks supported this kind of transaction.
Under the new rules, the National Bank of Ukraine put his foot down, no bank is allowed to support any transactions with national currency that lead to crypto buys.
And there is more. The new rules are limiting the amount of cryptocurrency people can buy with foreign currencies. The limit is quite harsh being an equivalent of UAH 100,000 (roughly $3,300) per month.
The restrictions implemented in Ukraine are not exclusive to Bitcoin. They include replenishment of electronic wallets, brokerage or foreign exchange accounts and payment of traveler’s checks.
Will Ukraine get back to loving crypto in future?
According to the bank’s statement, significant volumes of foreign currency purchases by banks seeking international settlements ‘create some additional pressure’. The capital outflowing abroad seems to be worrying Ukrainian government a lot.
The new rules are only to help improve the foreign exchange market as well as reducing pressure on Ukraine’s international reserves, which is a necessary prerequisite for easing restrictions in the future, the National Bank of Ukraine said in a statement.
Anyways, the move is kind of frightening. It basically means that Ukrainian citizens are no longer able to buy crypto directly through crypto exchanges, for example Binance, which is extremely popular in Ukraine. The rules also prohibit banks to support P2P transactions abroad. Which means that you won’t be able to buy crypto with Ukrainian bank account no matter what crypto exchange of the world that is. Even if you are registered at, say, Coinbase with German passport. Your Ukrainian bank will now allow you to attach your card and buy crypto there.
A few Ukrainian crypto exchanges that have emerged recently might also feel pressure of the new rules.
Quite an obvious question come to mind. What is the use of so called ‘legalization’ of cryptocurrency if now Ukraine bans Bitcoin buys? You can’t be legalizing something just to ditch it in a few weeks. That’s too bold even for Ukraine, a country famous for its revolutions, social movements and political crises of al kinds.
Martial law is a great excuse for almost any decision, isn’t it?
We’ll have to wait and see if the restrictions are to be eased as the war subsides.
Source: National Bank of Ukraine