what awaits the Ukrainian bitcoin market in 2023?

At the beginning of 2022, Ukraine adopted the Law “On Virtual Assets” (“On VA”), which regulates operations with cryptocurrencies. Along with NBU The National Securities and Stock Market Commission (NCSM) was appointed as the market regulator.

Despite the war, the country continues to improve the regulation of cryptocurrencies, preparing a number of legislative initiatives that will bring the market out of the gray zone. Cryplogger talked about the main upcoming changes with Yury Boyko, a member of the National Securities and Stock Market Commission.

Cryplogger (FL): Hello Yuri. The law “On VA” is already a year old, but it has not yet entered into force. What is needed to start its operation?

Yuriy Boyko (Yu.B.): For the law “On VA” to come into force, it was necessary to amend the Tax Code. In addition, the text of the law was relevant to the market at the time of its development, a couple of years ago, and the virtual asset market is very dynamic.

Ukraine has chosen the path of European integration for itself, respectively, the path to EU membership will require the adaptation of local cryptocurrency legislation to the regulations MiCA.

This document was developed by influential experts of world importance, who have collected the best expertise and practice of the virtual asset market in Europe. There is already an absorption of errors and adjustments put down to paper by EU experts. We, as a future member of the EU, also take into account all these aspects.

FL: At the moment, MiCA has not yet been finally adopted by the EU. Will Ukraine monitor potential changes to this regulation?

Yu.B.: The regulation has been developed for more than four years with constant consultations, involvement of major market players, and public discussions. To date, the version of the regulation has been approved by the Council of the EU, and in February it is submitted to the vote of the European Parliament.

Now we are consulting with European experts who participated in the development of the regulation, and we hope for its adoption within the specified time frame. Yes, indeed, we have information, and this is emphasized by Western colleagues, that changes are being prepared for this edition of the regulations. We are ready for this. I repeat once again that the market for virtual assets is changing rapidly and such changes are a normal process.

FL: Will the classification of types of virtual assets and services be changed in the law “On VA”? Now it is quite different from the one that is spelled out in MiCA.

Yu.B.: Yes that’s right. MiCA gives a broader definition of terms, but on the other hand clearly divides them into three categories. These are Asset referenced tokens – asset-linked tokens, Electronic money tokens – electronic money tokens and all other crypto assets, including service tokens. It is this classification that will be laid down in the legislation of Ukraine.

Also, MiCA clearly defines ten services, including the exchange license as a separate type. These services will be reflected in the updated law, namely:

• storage and administration of VA on behalf of third parties;
• functioning of the trading platform for VA;
• exchange of VA for cash;
• exchanging VA for other virtual assets;
• execution of orders for VA on behalf of third parties;
• VA placement;
• provision of VA transfer services on behalf of third parties;
• receiving and transferring orders for VA on behalf of third parties;
• providing advice on VA;
• IA portfolio management activities.

Unfortunately, the law “On VA” had only four types of services and a different approach was described there. In particular, in order for the exchange to work, it was necessary to obtain a license for two or three types of services.

FL: MiCA also suggests that in order for the exchange to operate, it is necessary to obtain licenses for several types of services. Is it correct to say that, given the functioning of the market, the exchange should be the custodian of virtual assets, the organizer of trade and the broker?

Yu.B.: I do not want to go into detail about the business models of each exchange individually. However, this is true. In order to provide the entire required range of services to the end user, there must be several licenses that the exchange must obtain. MiCA prescribes requirements for all types of licenses and licensees.

FL: The question most interesting to readers concerns the forthcoming taxation of cryptocurrency transactions. How does the NSMSC see this concept?

Yu.B.: Indeed, this is the most difficult issue on which the local industry as a whole depends. Together with Ernst&Young specialists in Ukraine, with the support of the USAID Financial Sector Reform project, we developed a concept in which we analyzed the experience of world jurisdictions in regulating the virtual assets market.

Most countries in their concept have prescribed the taxation of transactions with virtual assets as an investment activity, that is, the approach is similar to the principle of taxation of transactions with securities.

Studying international experience, we saw that in all countries the very concept of taxation is quite complex. You cannot take and copy the practice of another country and launch it at home. It is important to understand here that there are different operations with virtual assets.

However, there are only five main operations with taxable virtual assets in the world: mining, the sale of cryptocurrencies for money, their exchange, the payment of cryptocurrencies for goods and services, and the growth of market value – this is another tax that works abroad.

With this in mind, we wrote out a concept that is similar to the existing taxation mechanism for securities in Ukraine. It will cover all five of the above types of operations.

FL: Were there any consultations with market participants prior to drafting the tax bill?

Yu.B.: Yes. The National Securities and Stock Market Commission has created an Advisory Council on the regulation of virtual assets, which attracts market participants, deputies and relevant departments.

FL: What about those citizens who already own virtual assets? How can they confirm the price in accordance with the existing concept?

Yu.B.: It’s a difficult question. But I can say the following: those who have already bought cryptocurrency, according to the concept that we proposed for discussion, must provide information on confirmation of the cost of purchasing a virtual asset.

Those owners who cannot confirm it will obviously have problematic moments. However, we will look for other designs that will simplify this point for users.

FL: Will the introduction of cryptocurrency taxation require additional by-laws and adjustments to existing legislation?

Yu.B.: Here the question is which ones. For example, regarding reporting, yes, most likely. After the presentation in the law, it will be clear what else needs to be introduced and finalized.

FL: Most countries in the issue of regulating cryptocurrencies have not taken the path of creating international legislation, preferring experimental concepts at the national level. Why has Ukraine not chosen a similar approach?

Yu.B.: We considered such a conceptual approach, but it would be very time-consuming for our country. We also already had developments and the law “On VA”.

Ukraine is the world leader in virtual assets turnover, we have more than 5 million crypto wallets open. I’m not afraid of this word, we can become a trendsetter. Given the market pressure, in a good way, and the rapid development – this gives us a push to act quickly. The industry needs legalization of virtual assets in Ukraine for business development now.

We have chosen for ourselves the concept of introducing MiCA into our basic law. And then we will have so-called sandboxes, since MiCA does not cover some markets, such as DeFi and NFT.

So far, even European regulators do not have a good practice of supervising these segments. Accordingly, we cannot stay away from these directions. I am sure that the regulators of our basic law will have sandboxes where such projects will be tested.

FL: What professional bitcoin market participants do you expect to be among the first to obtain a license to operate in Ukraine?

Yu.B.: We see interest from exchanges wishing to build their work in Ukraine, given our potential. There are also many who want to build business models for their own commercial interests. You can conditionally call them issuers.

FL: Who exactly are we talking about, for example, issuers of digital assets like Tether? Is it implied that such a company should be registered in Ukraine?

Yu.B.: This will be a new term “offerer” – an individual or legal entity that can make a public offer of virtual assets.

FL: Most virtual assets have been issued for a long time and they are freely circulating in the EU and the US. How will their turnover be regulated on the territory of Ukraine?

Yu.B.: The concept embodied in MiCA defines such a thing as a public offer.

After the legalization of the circulation of virtual assets in Ukraine, the offerors must comply with the conditions of the public offer. This is notice to third parties in any form and by any means. It contains enough information about the terms of the offer and the proposed virtual assets for potential owners to make a decision to purchase them. That is, a proposal for an indefinite circle of persons.

In general, it all comes down to the requirements of the white paper, which should describe the nature of the risks for the investor, the essence of the technology, and so on.

Companies that cannot comply with the norms, unfortunately, will not be treated with a public offer in Ukraine.

FL: The main goal of the legalization of virtual assets is the benefits for Ukraine. What exactly does the NSMSC expect from the launch of the market in a legal plane?

Yu.B.: As I said before, our country is the leader in this industry. The market exists here and now. We will take him out of the gray zone.

First, it will help business development. When there are clear rules and an understanding of how to build a business, it becomes investment attractive. Corruption factors will disappear. The second is the introduction of taxation.

FL: How much budget revenue can the legalization of virtual assets bring to Ukraine?

Yu.B.: There must be a clear justification for this. There are no clear numbers, because there are no statistics. Only analytical data of consulting companies are available. We cannot talk about money, because we have not approved the concept and the issue of the bet itself. All this will be decided by our deputy corps.

FL: There are restrictions on the movement of capital in Ukraine. Currently, with the legalization of virtual assets in Ukraine, these restrictions are being lifted. How will this correlate with the NBU norms?

Yu.B.: The National Bank is the main monetary policy in the country and no laws should circumvent the norms established by it. Also, we should not forget that in Ukraine there is a war that affects all processes in the state.

However, we are holding consultations with NBU specialists on this norm. What will be the model, we can not yet say. It will be included in the bill.

FL: Will the restrictions be lifted after the legalization of VA in Ukraine? Can the NBU expand restrictions on them?

Yu.B.: While we are not talking about lifting restrictions. We are only talking about the fact that now there are currency restrictions and this law should not harm them, because there is a war going on in the country.

FL: Will licensed companies be able to attract Ukrainians and allow them to open accounts in other jurisdictions?

Yu.B.: If a Ukrainian wants to open a wallet somewhere, then this is his right. However, now we are talking about the regulation of activities on the territory of Ukraine, where everything will be licensed and understandable to the maximum. But this does not mean that such legalization is the maximum protection for such activities.

FL: How to prevent cases like FTX?

Yu.B.: The FTX case is directly related to licensing requirements. This showed everyone that there were affiliates and that capital requirements had not been met.

FL: Is it correct to say that the adoption of a bill on taxation automatically leads to the entry into force of the law “On IA”?

Yu.B.: These documents are interconnected and cannot exist without each other.

FL: When will the tax bill and the updated law “On VA” be presented?

Yu.B.: We set a goal by the end of January 2023, but, obviously, we will not have time.

Read more about the regulation of the cryptocurrency market adopted in Ukraine for 2022 in a special Cryplogger article.

At the beginning of 2022, Ukraine adopted the Law “On Virtual Assets” (“On VA”), which regulates operations with cryptocurrencies. Along with NBU The National Securities and Stock Market Commission (NCSM) was appointed as the market regulator.

Despite the war, the country continues to improve the regulation of cryptocurrencies, preparing a number of legislative initiatives that will bring the market out of the gray zone. Cryplogger talked about the main upcoming changes with Yury Boyko, a member of the National Securities and Stock Market Commission.

Cryplogger (FL): Hello Yuri. The law “On VA” is already a year old, but it has not yet entered into force. What is needed to start its operation?

Yuriy Boyko (Yu.B.): For the law “On VA” to come into force, it was necessary to amend the Tax Code. In addition, the text of the law was relevant to the market at the time of its development, a couple of years ago, and the virtual asset market is very dynamic.

Ukraine has chosen the path of European integration for itself, respectively, the path to EU membership will require the adaptation of local cryptocurrency legislation to the regulations MiCA.

This document was developed by influential experts of world importance, who have collected the best expertise and practice of the virtual asset market in Europe. There is already an absorption of errors and adjustments put down to paper by EU experts. We, as a future member of the EU, also take into account all these aspects.

FL: At the moment, MiCA has not yet been finally adopted by the EU. Will Ukraine monitor potential changes to this regulation?

Yu.B.: The regulation has been developed for more than four years with constant consultations, involvement of major market players, and public discussions. To date, the version of the regulation has been approved by the Council of the EU, and in February it is submitted to the vote of the European Parliament.

Now we are consulting with European experts who participated in the development of the regulation, and we hope for its adoption within the specified time frame. Yes, indeed, we have information, and this is emphasized by Western colleagues, that changes are being prepared for this edition of the regulations. We are ready for this. I repeat once again that the market for virtual assets is changing rapidly and such changes are a normal process.

FL: Will the classification of types of virtual assets and services be changed in the law “On VA”? Now it is quite different from the one that is spelled out in MiCA.

Yu.B.: Yes that’s right. MiCA gives a broader definition of terms, but on the other hand clearly divides them into three categories. These are Asset referenced tokens – asset-linked tokens, Electronic money tokens – electronic money tokens and all other crypto assets, including service tokens. It is this classification that will be laid down in the legislation of Ukraine.

Also, MiCA clearly defines ten services, including the exchange license as a separate type. These services will be reflected in the updated law, namely:

• storage and administration of VA on behalf of third parties;
• functioning of the trading platform for VA;
• exchange of VA for cash;
• exchanging VA for other virtual assets;
• execution of orders for VA on behalf of third parties;
• VA placement;
• provision of VA transfer services on behalf of third parties;
• receiving and transferring orders for VA on behalf of third parties;
• providing advice on VA;
• IA portfolio management activities.

Unfortunately, the law “On VA” had only four types of services and a different approach was described there. In particular, in order for the exchange to work, it was necessary to obtain a license for two or three types of services.

FL: MiCA also suggests that in order for the exchange to operate, it is necessary to obtain licenses for several types of services. Is it correct to say that, given the functioning of the market, the exchange should be the custodian of virtual assets, the organizer of trade and the broker?

Yu.B.: I do not want to go into detail about the business models of each exchange individually. However, this is true. In order to provide the entire required range of services to the end user, there must be several licenses that the exchange must obtain. MiCA prescribes requirements for all types of licenses and licensees.

FL: The question most interesting to readers concerns the forthcoming taxation of cryptocurrency transactions. How does the NSMSC see this concept?

Yu.B.: Indeed, this is the most difficult issue on which the local industry as a whole depends. Together with Ernst&Young specialists in Ukraine, with the support of the USAID Financial Sector Reform project, we developed a concept in which we analyzed the experience of world jurisdictions in regulating the virtual assets market.

Most countries in their concept have prescribed the taxation of transactions with virtual assets as an investment activity, that is, the approach is similar to the principle of taxation of transactions with securities.

Studying international experience, we saw that in all countries the very concept of taxation is quite complex. You cannot take and copy the practice of another country and launch it at home. It is important to understand here that there are different operations with virtual assets.

However, there are only five main operations with taxable virtual assets in the world: mining, the sale of cryptocurrencies for money, their exchange, the payment of cryptocurrencies for goods and services, and the growth of market value – this is another tax that works abroad.

With this in mind, we wrote out a concept that is similar to the existing taxation mechanism for securities in Ukraine. It will cover all five of the above types of operations.

FL: Were there any consultations with market participants prior to drafting the tax bill?

Yu.B.: Yes. The National Securities and Stock Market Commission has created an Advisory Council on the regulation of virtual assets, which attracts market participants, deputies and relevant departments.

FL: What about those citizens who already own virtual assets? How can they confirm the price in accordance with the existing concept?

Yu.B.: It’s a difficult question. But I can say the following: those who have already bought cryptocurrency, according to the concept that we proposed for discussion, must provide information on confirmation of the cost of purchasing a virtual asset.

Those owners who cannot confirm it will obviously have problematic moments. However, we will look for other designs that will simplify this point for users.

FL: Will the introduction of cryptocurrency taxation require additional by-laws and adjustments to existing legislation?

Yu.B.: Here the question is which ones. For example, regarding reporting, yes, most likely. After the presentation in the law, it will be clear what else needs to be introduced and finalized.

FL: Most countries in the issue of regulating cryptocurrencies have not taken the path of creating international legislation, preferring experimental concepts at the national level. Why has Ukraine not chosen a similar approach?

Yu.B.: We considered such a conceptual approach, but it would be very time-consuming for our country. We also already had developments and the law “On VA”.

Ukraine is the world leader in virtual assets turnover, we have more than 5 million crypto wallets open. I’m not afraid of this word, we can become a trendsetter. Given the market pressure, in a good way, and the rapid development – this gives us a push to act quickly. The industry needs legalization of virtual assets in Ukraine for business development now.

We have chosen for ourselves the concept of introducing MiCA into our basic law. And then we will have so-called sandboxes, since MiCA does not cover some markets, such as DeFi and NFT.

So far, even European regulators do not have a good practice of supervising these segments. Accordingly, we cannot stay away from these directions. I am sure that the regulators of our basic law will have sandboxes where such projects will be tested.

FL: What professional bitcoin market participants do you expect to be among the first to obtain a license to operate in Ukraine?

Yu.B.: We see interest from exchanges wishing to build their work in Ukraine, given our potential. There are also many who want to build business models for their own commercial interests. You can conditionally call them issuers.

FL: Who exactly are we talking about, for example, issuers of digital assets like Tether? Is it implied that such a company should be registered in Ukraine?

Yu.B.: This will be a new term “offerer” – an individual or legal entity that can make a public offer of virtual assets.

FL: Most virtual assets have been issued for a long time and they are freely circulating in the EU and the US. How will their turnover be regulated on the territory of Ukraine?

Yu.B.: The concept embodied in MiCA defines such a thing as a public offer.

After the legalization of the circulation of virtual assets in Ukraine, the offerors must comply with the conditions of the public offer. This is notice to third parties in any form and by any means. It contains enough information about the terms of the offer and the proposed virtual assets for potential owners to make a decision to purchase them. That is, a proposal for an indefinite circle of persons.

In general, it all comes down to the requirements of the white paper, which should describe the nature of the risks for the investor, the essence of the technology, and so on.

Companies that cannot comply with the norms, unfortunately, will not be treated with a public offer in Ukraine.

FL: The main goal of the legalization of virtual assets is the benefits for Ukraine. What exactly does the NSMSC expect from the launch of the market in a legal plane?

Yu.B.: As I said before, our country is the leader in this industry. The market exists here and now. We will take him out of the gray zone.

First, it will help business development. When there are clear rules and an understanding of how to build a business, it becomes investment attractive. Corruption factors will disappear. The second is the introduction of taxation.

FL: How much budget revenue can the legalization of virtual assets bring to Ukraine?

Yu.B.: There must be a clear justification for this. There are no clear numbers, because there are no statistics. Only analytical data of consulting companies are available. We cannot talk about money, because we have not approved the concept and the issue of the bet itself. All this will be decided by our deputy corps.

FL: There are restrictions on the movement of capital in Ukraine. Currently, with the legalization of virtual assets in Ukraine, these restrictions are being lifted. How will this correlate with the NBU norms?

Yu.B.: The National Bank is the main monetary policy in the country and no laws should circumvent the norms established by it. Also, we should not forget that in Ukraine there is a war that affects all processes in the state.

However, we are holding consultations with NBU specialists on this norm. What will be the model, we can not yet say. It will be included in the bill.

FL: Will the restrictions be lifted after the legalization of VA in Ukraine? Can the NBU expand restrictions on them?

Yu.B.: While we are not talking about lifting restrictions. We are only talking about the fact that now there are currency restrictions and this law should not harm them, because there is a war going on in the country.

FL: Will licensed companies be able to attract Ukrainians and allow them to open accounts in other jurisdictions?

Yu.B.: If a Ukrainian wants to open a wallet somewhere, then this is his right. However, now we are talking about the regulation of activities on the territory of Ukraine, where everything will be licensed and understandable to the maximum. But this does not mean that such legalization is the maximum protection for such activities.

FL: How to prevent cases like FTX?

Yu.B.: The FTX case is directly related to licensing requirements. This showed everyone that there were affiliates and that capital requirements had not been met.

FL: Is it correct to say that the adoption of a bill on taxation automatically leads to the entry into force of the law “On IA”?

Yu.B.: These documents are interconnected and cannot exist without each other.

FL: When will the tax bill and the updated law “On VA” be presented?

Yu.B.: We set a goal by the end of January 2023, but, obviously, we will not have time.

Read more about the regulation of the cryptocurrency market adopted in Ukraine for 2022 in a special Cryplogger article.