Ukraine will block the Bitcoin accounts of “separatists” in the country’s east. Such was the statement of the head of the Security Service of Ukraine (SBU), Valentyn Nalyvaychenko.

According to Nayvaychenko, the SBU and the State Financial Monitoring Service will put special focus on cards and bank accounts, as reported by forklog.com. He also listed Bitcoin among the payment instruments subject to control.

Valentin Nalyvaychenko stated:

“Another aspect of the joint work of the SBU and SCFM, as well as the Ministry of Internal Affairs, where necessary, is the blocking of accounts, cards, various ‘bitcoins’ and so on, where the separatists are trying to funnel money.”

Nalivaychenko did not explain exactly how these Bitcoin ‘accounts’ would be blocked.

Valentyn Nalyvaychenko

When asked whether the blockage of bitcoin accounts is even possible, the founder of the Ukraine Bitcoin Embassy and Kuna Bitcoin Agency, Michael Chobanian, told Cointelegraph:

“It’s impossible to start with and it is useless. […] What are they going to do with these bitcoins? […] they will not be able to sell them in Russia. Maybe black market but still you will need to physically send cash to than region. I doubt that separatists will accept bitcoin directly.”

Nevertheless, it appears that the largest commercial bank in Ukraine, Privatbank, has already suspended the account of the Ukrainian exchange btc-trade.com.ua, which posted the following tweet on March 19: 

Translation:

“Privatbank has suspected us of something, we apologize as we are temporarily suspending payouts in Hryvnia.”

Due to the protracted military conflict in the eastern Donetsk and Lugansk regions of Ukraine, the country's national currency, the Hryvnia, has been in free-fall since the beginning of the year. 

“Without the much anticipated credit from the IMF our budget will collapse in the coming month, if not weeks,” explained Chobanian. “To receive this financial support, Ukraine has to be fully compliant not only with IMF requirements but FATF as well. As you might know, the objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. And this is the real reason behind recent statements form the SBU (ex-KGB) and National Bank of Ukraine (NBU).”

But despite the previous warnings from authorities on crytocurrencies, the rampant inflation has raised hopes that cryptocurrency may be used as an option to retain people’s savings in the country, where capital controls have already been enacted, where foreign currency such as the USD is scarce and where Bitcoin has been selling for way above its market value on Localbitcoins.

Michael Chobanian

While cash withdrawals in the military operations zone have been carried out mainly through intermediaries in special exchange offices, according to forklog, it will be interesting to see whether the authorities will go after all of these third parties. More importantly, this experiment may also prove to be an interesting case study of whether the state is capable of stemming the flow of a decentralized and borderless form of money.

Chobanian concluded:

“What is next? My team of lawyers and IT specialists, together with Bitcoin Foundation Ukraine have developed a draft plan on Bitcoin regulation in Ukraine. In this document we have used works published by FATF, Bank of England, ECB, and recent developments of the BitLicence in NY. Unfortunately we get more support from above mentioned organizations than from local government. Once we push forward with the necessary bitcoin regulation/deregulation in Ukraine, I believe a lot of bitcoin investment can flow in. It’s a land of opportunity in the middle of geographical Europe! NBU and SBU - Join us.”

Note: This article has been updated to include the response of Michael Chobanian.

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