Over the past year, more than $50 billion in cryptocurrencies was moved from digital wallets in China to other jurisdictions, according to the latest Chainalysis report. Chinese people use cryptocurrencies to bypass financial cross-border controls.
The new report of Chainalysis, which develops solutions for tracking blockchain transactions, claims that over $50 billion in cryptocurrencies was transferred to other countries in the world over the past year. Chinese investors use cryptocurrencies to withdrawing more money from the country than allowed by Chinese law.
Chinese citizens are only allowed to buy foreign currency from financial institutions worth up to $50,000 per year. In the past, wealthy citizens bypassed the limit by investing in foreign real estate and other assets. But the Chinese government in recent years tightened its fight against such schemes for the withdrawal of capital from the country.
“Cryptocurrency could be picking up some of the slack though,” the report said. “Over the last twelve months, with China’s economy suffering due to trade wars and devaluation of the yuan at different points, we’ve seen over $50 billion worth of cryptocurrency move from China-based addresses to overseas addresses.”
Stablecoin Tether is among the most popular assets for such capital withdrawal.
“In total, over $18 billion worth of Tether has moved from East Asia addresses to those based in other regions over the last 12 months. Again, it’s highly unlikely that all of this is capital flight.”
Part of this activity can be explained by the fact that miners in China are converting newly mined coins to Tether and sending them to exchanges abroad. But analysts were able to find indirect evidence of capital flight from China. They recorded significant spikes in Tether’s movement after amid falling markets in March 2020.
“Equities in both the U.S. and China were still losing value at this time, as was the yuan itself. It’s possible that the economic tumult may have prompted some capital flight from China, though much of the Tether movement could have been East Asia-based cryptocurrency traders moving their holdings to international exchanges in order to trade at a time when cryptocurrency price volatility was high,” Chainalysis report reads.