- As per a Chainalysis report, over $50 billion worth of cryptocurrency has moved from China-based digital wallets to other parts of the world last year
- The Chinese government currently directs that citizens can buy only up to $50,000 of foreign currency a year at a financial institution
While there does exist, a stringent capping issued by the government on the amount of capital Chinese citizens are allowed to transfer from the country, the question arises about how much of it is actually a reality. A recent report by blockchain forensics firm Chainalysis reveals that approximately $50 billion worth of cryptocurrency assets have left China in the past year.
As per the report, Tether accounted for more than $18 billion of the outflows from East Asia during that period. With its value pegged to the USD, the cryptocurrency accounts for 93% of stablecoin usage in China. This is making investors sell off lump sum amounts in exchange of fiat money which are relatively unstable.
A stablecoin is a form of digital money that is generally backed by another asset with a view to stabilising its volatile nature. It is this feature that makes it convenient to transfer large amounts of cryptocurrency because chances of their value fluctuating wildly are slim.
Tether: Go-to option for Capital Flights
The report also highlights how stablecoins like Tether are particularly the go-to option for capital flights. For instance, Dovey Wan, a founding partner of a cryptocurrency investment firm, points that cryptocurrency has become a USD replacement for many in China today. In 2019, New York sued Tether and its associate company Bitfinex over the loss of $850 million plus funds in client and corporate funds. The Commodity Futures Trading Commission subpoenaed the two companies in 2017 over an alleged claim that one USD backed every Tether coin, however, the companies have denied doing anything wrong.
Regardless of the scenario, Tether has surged to $12.8 billion from approximately $2 billion in 2019. Paolo Ardoino, Tether’s CTO, told Chainalysis that the uses for the cryptocurrency are evolving. It is the instant settlement, deep liquidity, cheaper fees and relatively stable price associated with Tethers which has generated a wide array of opportunities for crypto traders.
As Chainalysis head of research Kim Grauer opines, investors are increasingly using Tether for international transactions. For instance, Chinese crypto firms conducting business in Latin America are increasingly preferring Bitcoin and Tether for payment purposes.
While the Chinese government outlawed the exchange of yuan for cryptocurrencies in 2017, users have circumvented this ban by using a clandestine network of brokers who trade yuan for Tether.
Cryptocurrency influencers in China too, have been staunch advocates of Bitfinex, with many of them being Tether wholesalers. What follows next is the sale of stablecoin to a large network of over the counter traders around China, who in turn sell Tether to the public. The findings also reveal that Bitcoin miners here often sell the coins in a jiffy, helping to drive out digital money into Western Europe and North America.