Billions in crypto flowing out of China

US-China trade war fears push wealthy Chinese circumvent capital flight restrictions

Billions in crypto flowing out of China
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Over $50 billion in cryptocurrency has flowed out of China over the past 12 months amid the country’s trade conflicts, according to a new study cited by a Bitcoin.com report.

East Asia is the world’s largest cryptocurrency market, accounting for about 31% of all crypto transactions in the last 12 months.

In an excerpt from its upcoming “2020 Geography of Cryptocurrency” report, Chainalysis explained that more cryptocurrency was sent from East Asia to foreign addresses than from other regions.

“Over $50 billion travelled from East Asia addresses to addresses in other regions, compared to just over $38 billion for Western Europe, the region next in terms of value sent out of the region,” the firm reported.

Tethered to US dollar

According to Chainalysis, cryptocurrency holders are using the controversial stablecoin Tether to move their money. A stablecoin is a digital currency that is usually backed by another asset or group of assets in efforts to stabilise its value and limit volatility. Tether claims to be pegged to the US dollar.

Stablecoins are useful for transferring large amounts of cryptocurrency because, in theory, the value of the cryptocurrency a person is moving should not see wild swings.

“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,” Chainalysis said in its report.

Part of this activity can be explained by China-based miners converting their newly-minted coins into Tether and sending them to exchanges abroad, Chainalysis said. Miners are people with specialised computers solving complex math problems to mint new cryptocurrency. When they solve this complex problem, miners are rewarded in cryptocurrency.

But the report also found significant spikes in Tether movement on certain news events. Firstly, in October, Chinese President Xi Jinping threw his backing behind blockchain, the technology that underpins many digital coins.

Secondly, after a massive sell-off in mid-March, the price of bitcoin began to recover.

“Equities in both the US 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 said.

Professional-sized volumes

Most of the cryptocurrency outflow was from China, Chainalysis said, noting that Beijing only allows citizens to move the equivalent of $50,000 out of the country each year. However, wealthy Chinese have found some ways to circumvent the restrictions, such as via real estate and shell companies, but the authorities have been cracking down on these methods.

“A robust professional market” and an “extremely active” retail market drive East Asia’s cryptocurrency trading volume, Chainalysis posted out. Approximately 90% of all crypto volume transferred from the region in any given month is “professional-sized” – transactions exceed $10,000 in value.

East Asian crypto pros also appear to trade a broad range of assets frequently for speculation purposes, unlike in North America, where pros focus more on bitcoin and hold for longer, Bitcoin.com reported.

“The liquidity of the East Asia market also makes it the closest we have to a self-sustaining market,” Chainalysis said.

Read more: Rock bottom interest rates are driving crypto boom 

This report appeared initially on Asia Times website