Chainalysis – Tether Could be Facilitating Capital Outflow From China
Tether (USDT) and cryptocurrencies, specifically, may be responsible for capital outflow from China, as per a research report by blockchain analytics company Chainalysis.
The document states that more than 44% of cryptocurrency dealings in East Asia are conducted with counter-parties in the South Asia region, turning it into a near “self-sustaining market” in the sector.
Nevertheless, in the past year, share of worldwide crypto activity by East Asia has started to decrease, with more than $50 billion worth cryptos moving out of China. Philip Bonello, research director at Grayscale, said:
“It appears that users in many regions use stablecoins to access U.S. dollars for cross-border payroll, remittance, and capital flight from local currencies.”
From the time Beijing issued a blanket ban on exchange of yuan for cryptos three years back, Tether, the US dollar pegged stablecoin, has become a favorite substitute of Chinese traders for fiat currency.
In comparison to other areas, East Asia’s share of transaction volume involving Bitcoin (BTC) is low at only 51%. Rest of the transaction volume is made up of stablecoins. Specifically, USDT dominates with a 93% share.
Even though yuan-USDT trades are also banned, OTC brokers continue to offer stablecoin to enable traders to freeze their profits from crypto trades without being alarmed by price fluctuations.
In June 2020, Tether eclipsed Bitcoin in terms of the most remitted token to East Asian wallet addresses.
In East Asia, more than $18 billion worth Tether got transferred to addresses based out of overseas jurisdictions last year. However, out of the aforementioned amount, precise amount of capital flight is difficult to establish.
Analysts believe that the yuan’s volatility in 2020 and ongoing tensions between the US and China could encourage domestic investors to circumvent capital controls. Beijing has put in place a limit of $50,000 which its citizens can take out of the country every year.
In the meantime, the government plugged loop holes used for moving funds. This includes investments in overseas real estate and other investment vehicles such as cryptocurrencies.
Other aspects that support exchange of yuan to crypto is the unpredictability about China government backed digital currency’s (CBDC) likely impact on private cryptocurrency market.
Chainalysis has pointed out that the factors mentioned about could be paving way for the country’s crypto community to “to move portions of their holdings overseas.” Dovey Wan, Primitive Ventures founding partner and regional expert, has highlighted the strategy of Beijing with respect to new technologies:
“It’s important that [President] Xi talked about ‘the blockchain’ but not ‘Bitcoin.’ It implies that the digital yuan will be the only official, state-sanctioned cryptocurrency and dampens the view of crypto as a private asset.”
China government’s policy towards crypto ultimately decides the assets used by traders and the need to use it. This was explained by the American broadcaster Max Keiser who said that the US-China trade tensions are encouraging the movement of capital out of Asia.
Nevertheless, his speech mentioned about Bitcoin, instead of stablecoins such as Tether. Keiser said “Capital flight out of Asia taking the Bitcoin express,” as the numero uno crypto appreciated to hit $12,000.