On March 16, 2022, President Volodymyr Zelensky signed a law making cryptocurrencies legal in Ukraine. The new law was signed amid the Russian invasion of Ukraine, highlighting the role cryptocurrencies played during the conflict.
The Virtual Assets Act defines the legal status, classification, and ownership of virtual assets. It also introduces financial monitoring measures for virtual assets.
Ukraine thus joins the ranks of countries that legally regulate cryptocurrencies, including Germany, Denmark, Spain, France, Iceland, Japan, Mexico, and the United Kingdom. The only country in the world that recognizes cryptocurrency as legal, as previously mentioned, is El Salvador.
Ukraine's cryptocurrency law comes as other countries around the world consider how to properly regulate the crypto industry.
El Salvador has legalized Bitcoin and is working to make the country a center for cryptocurrency activity. China, on the other hand, is trying to eliminate cryptocurrency trading and mining.
This month, US President Joe Biden signed an executive order calling on federal agencies to adopt a unified approach to the regulation and oversight of digital assets. However, the executive order is not a piece of legislation regulating the cryptocurrency industry.
In countries without specific cryptocurrency regulations, such as Ukraine, governments have sought to bring exchanges and other entities dealing with digital assets under the supervision of financial regulators. In the UK, for example, cryptocurrency exchanges must register with the Financial Conduct Authority and are subject to existing money laundering regulations. In contrast, Ukraine's approach aims to create legislation specifically tailored to the digital asset industry.
Until now, the cryptocurrency market in Ukraine had a similar status to other countries in the region, meaning it was still an unregulated issue, sparking debates about legality and security. Consequently, many banks could refuse to hold accounts related to cryptocurrency trading.
The draft law "On Virtual Assets" was passed by the Ukrainian parliament in September 2021. However, the president vetoed the law, arguing that it would involve excessive costs to establish a new supervisory body. During this time, cryptocurrencies remained a subject of uncertainty, unrelated to the existing legal framework.
On February 17, the Verkhovna Rada of Ukraine adopted the law after numerous amendments. Mykhailo Fedorov, Minister of Digital Transformation and Deputy Prime Minister of Ukraine, stated that the new law represents a huge opportunity for business development in Ukraine.
The law signed by President Zelensky recognizes cryptocurrencies as part of the state's financial policy, and the cryptocurrency market will be regulated by the existing National Commission for Stock Market Security.
From now on, entities dealing in digital currencies will be required to register their operations in Ukraine, where legal contacts with exchanges have been established. A special market oversight body will also be established to prevent abuse. Consequently, from now on, no bank will be able to refuse to maintain cryptocurrency-related accounts without just cause, and all forms of currency will gain equal legal status, allowing for their trading without restrictions.
The Ukrainian National Securities and Exchange Commission will be responsible for regulating and overseeing the cryptocurrency market. The body will also be responsible for issuing licenses to companies and implementing state policy in this industry. The Ministry of Finance will also work on amendments to the national tax and civil codes to fully regulate the virtual asset market.
After the outbreak of the war in Ukraine, the local government encouraged donations to finance weapons for the Ukrainian armed forces. Aid was also supposed to flow in the form of cryptocurrencies. This became the first-ever instance of warfare involving the use of cryptocurrencies on such a scale. According to various sources, by March 24, 2022, cryptocurrency donations totaled approximately €100 million.
The Ukrainian government has now launched an official website where people from around the world can donate using cryptocurrency. The money will go towards military and humanitarian aid for Ukraine.
This alert is for informational purposes only and does not constitute legal advice.
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