The report suggests that this could indicate the use of cryptocurrency as a vehicle to move money out of the country
According to a report published by Chainalysis, around $50 billion worth of cryptocurrency was moved from digital wallets based in China to other parts of the world in the last year alone. The report suggests that Chinese investors have been using cryptocurrency as a vehicle to transfer more money than they are allowed to out of the country.
Citizens of China are restricted to buying only up to $50,000 of foreign currency every year at a financial institution. Previously, wealthy citizens managed to circumvent this limit by using foreign investments in real estate and other assets. In response, the government has since cracked down on these methods.
However, cryptocurrency appears to be the latest avenue for bypassing the regulation.
“Over the last 12 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,” Chainalysis revealed.
While the report explains that not all of the money is capital in flight, it does posit that $50 billion can be considered as the absolute ceiling for capital flight using cryptocurrency from East Asia to other regions.
Cryptocurrency users are using Tether, the controversial stablecoin, to move their money.
A stablecoin is a digital currency that has its value tied to another asset or group of assets to better stabilise its value and volatility. Tether claims it is pegged to the US Dollar; however, there are fears that the company does not actually have enough US Dollars in reserve to back all of the digital coins that are currently in circulation.
In theory, stablecoins are the most useful avenue for transferring large amounts of cryptocurrency because the value that is being moved does not experience wild swings.
The report explains that part of this activity can be attributed to crypto miners based in China converting their freshly minted coins into Tether and sending them to exchanges abroad.
However, Chainalysis also found that there were significant spikes in Tether during certain news events. The first was in October 2019, when Chinese President Xi Jinping expressed his support for blockchain.
The second recorded spike was after a massive sell-off during March of this year, when Bitcoin began to recover.