According to a report obtained from blockchain analytics firm Chainalysis, Cryptocurrencies in general but mainly Tether (USDT) could play a significant role in the current capital flight from the East Asian region as China tightens its stance on the use of cryptocurrencies.
Since China’s move to place an embargo on the use and direct conversion of cryptocurrencies to the Nation’s National currency Yuan, the country has witnessed a mass exodus of digital currencies from the region. According to the report, about 44% of crypto transactions in East Asia are conducted with counter-parties within the jurisdiction.
This development makes it the closest seen in any self-sustaining market in the industry. China’s share of crypto activities has continued to plummet where a report by Grayscale suggests that over $50 billion worth of cryptocurrencies left China within a year.
“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.”
Chinese Traders Flood The U.S Dollar Pegged Stablecoin Market
Traders in the Chinese market have flocked to the U.S. dollar-pegged stablecoin Tether(USDT) since Beijing’s move to ban the direct conversion of Yuan for cryptocurrencies in 2017. As a result, when compared to other regions, Asia has a relatively low on-chain volume attributed to Bitcoin (BTC), which currently sits at 51%, while Tether accounts for almost 93%.
While Yuan trades remain highly prohibited, OTC traders have shifted focus to large volume transactions in stablecoins pegged to the US dolWhile Yuan trades remain highly prohibited, OTC traders have shifted focus to large volume transactions in stablecoins pegged to the US dollar. An extended report revealed that over $18 billion worth of Tether was transferred to addresses in regions outside of China in the past year, in which a large percentage of this transaction could represent a capital flight.
Additionally, Beijing’s decision to cap the maximum amount of Yuan that can be moved out of the country to an equivalent of $50,000 and the steaming U.S.– China trade war could also be considered as major incidents for locals to evade capital control.
China’s Digital Yuan Possess A Threat To Cryptocurrency Adoption
There is also vagueness as to what would potentially be the outcome of Beijing’s national cryptocurrency and how it would possibly affect China’s private digital asset market. Chainalysis points to the possibilities that this may be propelling China’s cryptocurrency community “to move portions of their holdings overseas.”
Commenting on the likely outcome of digital currency laws in China, Primitive Ventures founding partner Dovey Wan had reiterated:
“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.”
Unarguably, Chinese laws and regulations have been steadily fashioning which currency and digital assets its citizens and traders should adopt. An immediate change of direction seems unlikely at this point.