Digital assets help Chinese citizens bypass capital control laws. Stablecoins, like Tether, are used most commonly.
In the past year over $50 billion left China via cryptocurrency transactions, according to a Chainalysis report. As country’s citizens have a $50,000 annual cap on buying foreign currency, virtual money goes against the law by providing a getaway to bypass this limitation.
“Over the last twelve months, with China’s economy suffering due to trade wars and devaluation of the yuan at different points, we’ve seen over $50 billion worth of cryptocurrency move from China-based addresses to overseas addresses. Obviously, not all of this is capital flight, but we can think of $50 billion as the absolute ceiling for capital flight via cryptocurrency from East Asia to other regions,” states the report.
It has been noted the role of Tether as central in such transactions. It reduces the volatility risks in moving the capital and diverts excessive attention by regulatory authorities. But a great part of it is related to mining activity and conversion of newly-mined coins into Tether before sending it on to larger exchanges spanning more regions.
“It’s possible that the economic tumult may have prompted some capital flight from China, though 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,” says the report.
China’s southwestern Sichuan region boasts more than 50% of all computing power in the bitcoin network. Just earlier Coindesk posted that Chinese bitcoin mining pools were each seeing daily hashrate drops of between 10% and 20% following continuous rainstorms in the province.