More than $50 billion of cryptocurrency was transferred from
virtual wallets in China to other parts of the world last year, a potential
violation of the nation’s strict limits on how much money can be sent abroad,
according to a new report.
While Chinese traders are limited to the purchase of up to
$50,000 of foreign currency annually, the volume suggests stablecoins could be
being used to circumvent the regulation, according to Chainalysis, the New
York-based provider of regulatory compliance software.
“Historically, wealthy citizens have gotten around this
through foreign investments in real estate and other assets, sometimes even
using shell companies to carry out investments,” the survey said. “But the
government has cracked down on some of these methods. Cryptocurrency could be
picking up some of the slack.”
In contrast, the report said $38 billion in cryptocurrency
left Western Europe.
Chainalysis researchers suggest since China’s economy has
been struggling due to trade wars and devaluation of the yuan, traders are
moving more cryptocurrency overseas.
“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,” Chainalysis wrote.
While the report said not all of it is capital flight, $50
billion is considered the absolute ceiling for capital flight via
cryptocurrency from East Asia to other regions.
For example, more than $18 billion worth of Tether, the
blockchain cryptocurrency whose cryptocoins are backed by an equivalent amount
of traditional currencies, including the euro, dollar, or yen in a bank
account, has moved from East Asian addresses to those based in other regions.
“It’s highly unlikely that all of this is capital flight,”
Chainalysis said in the report.
Much of stablecoins’ popularity in East Asia stems from the
Chinese government’s decision three years ago to ban direct exchanges of yuan
for cryptocurrency, according to the survey.
“As a result, Tether has become the de facto fiat stand-in
for Chinese cryptocurrency users and primary means of on-ramping to Bitcoin and
other standard cryptocurrencies,” the report said.
Cryptocurrency has not been without controversy.
Last month, CoinDesk reported crypto over-the-counter
traders are being arrested in an attempt to crack down on illegal transactions.
Prominent OTC trader Zhao Dong of crypto lending platform
RenrenBit was questioned by police. Zhao
was released and is assisting police in investigations on anti-fraud and
anti-money laundering issues, CoinDesk reported.
Cryptocurrencies have been known methods to launch Ponzi
schemes or fraud in China, CoinDesk reports.
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