Cryptocurrencies – and tether (USDT) in particular – could play a major role in the recent capital flight out of China, according to a new report from blockchain analytics firm Chainalysis.
The report finds that more than 44% of cryptocurrency transactions in East Asia are with counterparties in the region, which brings it “closest to the self-sufficient market in the industry.”
However, over the past twelve months, East Asia’s relative share of global cryptocurrency activity has declined as China left over $ 50 billion worth of cryptocurrencies. Philip Bonello, Grayscale Research Director, said:
“Users in many regions appear to be using stable currencies to access the US dollar for cross-border payrolls, wire transfers and capital flight from local currencies.”
Since Beijing banned the direct transfer of yuan in cryptocurrencies in 2017, the stablecoin pegged to the US dollar has been a popular alternative for traders in the Chinese market.
Compared to other regions, East Asia has the lowest share of the chain volume for Bitcoin (BTC) with 51% of transfers by volume. The rest are made up of stable currencies, 93% of which are USDT.
While OTC brokers strictly trade the yuan against the US dollar, they continue to sell the stablecoin so traders can secure their profits from cryptocurrency trades without worrying about price fluctuations. In June of this year, Tether overtook Bitcoin and became the most widely used digital asset by East Asian addresses.
In the East Asian market, more than $ 18 billion worth of Tether was transferred to addresses in foreign jurisdictions last year. It remains difficult to determine exactly how this reflects capital flight.
Analysts claim that the yuan’s volatile valuation this year and tensions during the ongoing trade war between the United States and China could lead domestic investors to evade capital controls. Beijing forbids citizens to move the equivalent of US $ 50,000 out of the country each year.
In the meantime, the government has taken steps to move capital overseas through foreign property investments and other assets, leaving cryptocurrency as a possible alternative.
Other factors include uncertainty about how Beijing’s upcoming national cryptocurrency will affect the private digital asset market. The chain analysis suggests that this could lead the Chinese cryptocurrency community to “move parts of their holdings overseas”.
Primitive Ventures co-founder and regional expert Duffy Wan said when it comes to Beijing’s approach to new technology, “parking spaces are important”:
“It is important that [the President] speak of ‘blockchain’ and not ‘bitcoin’. This means that the digital yuan will be the only official cryptocurrency subject to government sanctions and will reduce the perception of the cryptocurrency as a private good.
Chinese state policy towards cryptocurrencies has always been the capital traders use and why.
In a comment earlier this month, US broadcaster Max Keizer also claimed that geopolitical tensions were stimulating capital flight from Asia – although it highlighted Bitcoin rather than stable coins like Tether. “Capital flight from Asia with Bitcoin Express,” he said as the asset surged to $ 12,000.