China’s $50bn crypto drain

Nation's crypto exodus over the past year a mixture of capital flight, trading interest and mining outflow, says report

Shang                                 

According to blockchain data analytics firm Chainalysis, more than $50bn (£38bn, €42bn) worth of cryptocurrency has left China-based digital wallets for other destinations in the past year.

Until recently, wealthy Chinese citizens were able to skirt the Chinese Communist Party’s $50,000 yearly limit on foreign currency purchases, through foreign investments in real estate and the like. However, in the wake of a recent clampdown on such activity, cryptos “could be picking up some of the slack”.

The uncertainty of both the US-China trade war and Covid-19 crisis has taken a moderate toll on the Chinese yuan. While the US dollar has suffered the similar fate of devaluation, Chinese citizens have nonetheless prized it as the global reserve currency.

The report stressed that “not all” of the crypto funds being moved to overseas bank accounts can be classified as capital flight, but maintained “we can think of $50bn as the absolute ceiling for capital flight via cryptocurrency from East Asia to other regions”.

USD stablecoins, such as Tether (USDT), have proved particularly popular with Chinese digital-asset enthusiasts. By their very name, stablecoins are generally liked for their low volatility, relative to other cryptocurrencies.

Chainanalysis stated: “In total, over $18bn 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.”

As China is a key nation in the mining of cryptocurrencies, a proportion of the $50bn figure can be explained by Chinese miners sending their new coins to exchanges abroad.

The research firm also noted that “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”.

Even considering these provisions, the movement of $50bn in digital assets abroad from China is of some note, and reflects the major role and influence that the nation has over the burgeoning sector.

 

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