Investors Move $50B in Crypto from China to Avoid Beijing Rules, Chainalysis Report Says

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by Wanguba Muriuki · 3 min read
Investors Move $50B in Crypto from China to Avoid Beijing Rules, Chainalysis Report Says
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Chainalysis reported that at least $50 billion of cryptocurrency moved from China-based digital assets to other parts of the world in 2019 hinting at capital flight from Beijing rules.

At least $50 billion of crypto moved from China-based digital assets to other parts of the world in 2019 according to a new report. That move points to probabilities that the Chinese investors are now transferring more money than allowed out of the country. Chinese citizens can just buy up to $50,000 of foreign currency annually at a financial institution.

Previously, wealthy citizens have now circumvented the limit using foreign investments in real estate and other assets. Since then, the government has cracked down on these methods according to a Chainalysis report. Chainalysis is a blockchain forensics firm. The report added:

“Cryptocurrency could be picking up some of the slack though. 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.”

Chainalysis develops and sells compliance and investigation software to governments and businesses. The report added that not all of the amount can be proven to be capital flight but experts can think of $50 billion as the ceiling of capital flight through crypto from East Asia to other regions.

Tether Strategy

Crypto holders are using controversial Tether stablecoin to move their money. By description, a stablecoin is a digital currency that is normally backed by another asset or group of assets in efforts to limit volatility and stabilize its value. Tether is pegged to the U.S. dollar.

Stablecoins can transfer huge amounts of cryptocurrency since, in theory, the value of the crypto a person is moving should not encounter wild swings. Chainalysis noted that more than $18 billion worth of Tether has been shifted from East Asia addresses to other regions in the past 12 months. But, it is highly unlikely that all of that amount is capital flight.

A part of the money moved can be explained by China-based miners who are changing their newly-minted coins into Tether. The miners then sent the funds to exchanges abroad as explained by Chainalysis.

President Xi Jinping Supports Blockchain

This report also discovered considerable spikes in the Tether movement on various news events. First, in October 2019, President Xi Jinping of China threw his backing behind blockchain which is the technology that underpins many digital coins. Secondly, the price of bitcoin started to recover after experiencing a massive sell-off in mid-March.

Equities in the United States and China were losing value at that time just as the yuan itself. Chainalysis said:

“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 to trade at a time when cryptocurrency price volatility was high.”

Tether has encountered lots of controversy in the past. The New York attorney general accused Bitfinex exchange and Tether Limited of hiding an $850 million loss in April 2019. Both companies have denied these allegations.

Previously, China took a hard stand against crypto assets. Beijing banned fundraising in 2017 through digital assets in processes known as initial coin offerings (ICOs) and local exchanges.

But, President Jinping has supported the underlying blockchain technology. In the meantime, the People’s Bank of China is developing its local digital currency.

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