Crypto regulation in Ukraine: What to expect in 2023

By  Ivan Dikalenko 688 17 Jan 2023
Photo - Crypto regulation in Ukraine: What to expect in 2023

The Law of Ukraine "On Virtual Assets" came into force last spring. However, the full launch of the Ukrainian crypto market is constantly delayed. What is the reason?

The Law of Ukraine "On Virtual Assets" is a framework

The new Law signals that in the medium term, both Ukrainian companies and international investors will be able to legally develop crypto business in our country. The activities of crypto exchanges and crypto exchangers will be carried out exclusively in the legal field. The authorities will begin to protect citizens' crypto assets from fraud and misappropriation. Ukrainians will have the opportunity to turn to the state for legal support and assistance.

The essential innovations of the Law "On Virtual Assets" include the following:
  1. Introduction of the conceptual apparatus ("virtual assets", "virtual financial assets", etc.).
  2. Requirements for service providers related to the circulation of virtual assets.
  3. Settlement of issues of a public offering of virtual assets.
  4. Penalties for violating the Law’s provisions, etc.

However, in general, the document is only a declaration of intent. It will work in full force only after the creation and approval of the regulations thereunder. We are talking about changes that will have to be made to existing laws and new orders from ministries and departments. An ecosystem in which the state can interact with Ukrainian players in the cryptocurrency market and foreign investors is still at the formation stage.

What new crypto laws will be in 2023

The National Commission on Securities and Stock Market(NCSM) created an advisory council to discuss and develop the missing documents. It included specialists from the Ministry of Digital Development, the National Bank of Ukraine, the National Securities and Stock Market Commission, and participants of the virtual assets market. Representatives of the Ukrainian blockchain industry – KUNA, WhiteBit, Hacken, Remme, Bitfury, and GeoPay – are also involved in the process, according to Oleksandr Bornyakov, Deputy Minister of Digital Transformation of Ukraine on IT industry development.

The Council members decided to start with creating and approving a draft law on amendments to the Tax Code of Ukraine. It will regulate the issue of taxation of income received from operations with virtual assets. Licensing issues and conditions for service providers are also being discussed.

It is planned to make some refinements to the new Law "On Virtual Assets". In the year that has passed since the adoption of the Law, the European Union has significantly updated the Markets in Crypto-Assets Regulation (MiCA). In turn, Ukraine received the status of a candidate for EU membership last summer. Therefore, domestic crypto legislation must promptly adapt to existing European regulatory mechanisms.

Most likely, exchange platforms will be required to have a white paper (a document that contains basic information about a product or project). Any misleading information will lead to sanctions. It will prescribe the provisions to hold service providers liable to clients for the loss of their crypto assets. The crypto asset holders will get disclaimers mentioning the risks of loss, etc. The bill's first draft with amendments to the Tax Code is planned to be outlined by the end of January.

"We want to create the most favorable conditions for developing the crypto business in Ukraine. So that global crypto companies can legally enter Ukraine and conduct business using the banking system. And Ukrainians have the opportunity to declare and protect their income in virtual assets," says Minister of Digital Transformation Mykhailo Federov.

However, despite the lack of a transparent legal framework, Ukraine has already entered the top three world leaders in using cryptocurrencies. In terms of the sum of indicators, we overtook such technological giants as the USA (5th place) and China (10th place).

Also, on the eve of the launch of the legal crypto market, in February 2023, a free introductory crypto literacy course for Ukrainians will start in Ukraine. The project is being implemented by specialists of the Ministry of Digital Transformation with the largest European crypto exchange WhiteBit, the non-profit organization Filecoin Foundation for the Decentralized Web, and the project, building the Web3 social metaverse.

However, experts note that Ukrainians should expect a full-fledged launch of the crypto market in 2024. First, the adoption of all necessary amendments and by-laws will take time. Secondly, the European Parliament is expected to vote on MiCA in April this year. In addition, the Regulation's provisions will begin to apply after a transitional period of 18 months, that is, in the 3rd quarter of 2024. Ukraine most likely won’t be ahead of schedule, according to which the European legislators have planned to act.