Over $50 Billion in Cryptocurrency Flees China in a Year, Report Highlights Circumvention of Capital Controls

A new report points to a sizeable exodus of cryptocurrency from digital wallets sited in China over the past year, in a sign that the medium has emerged as an increasingly popular means for Chinese investors to flout the country’s strict capital controls.

The report from cryptocurrency software firm Chainalysis found that in the past twelve months “over $50 billion worth of cryptocurrency move[d] from China-based to overseas addresses.”

Chainalysis pointed to the long-standing imposition of currency controls as a key motivation for the mass movement of cryptocurrency, given that Chinese nationals are only permitted to purchase USD$50,000 of foreign currency a year from financial institutions.

While wealthy Chinese citizens had previously employed investment in real estate and other assets to circumvent these controls, the report points out that Beijing has recently targeted these methods.

“Cryptocurrency could be picking up some of the slack,” said the Report. “Obviously, not al 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”

In order dodge to China’s strict controls on both cross-border capital movement and cryptocurrency trading, citizens are employing Stablecoins Tether to transfer their digital assets.

“In total, over $18 billion worth of Tether has moved from East Asia addresses to those based in other regions over the last 12 months,” said the Report.

The Report sees economic fluctuations in the wake of the COVID-19 pandemic as a key driving factor behind much of this capital flight, particularly in the month of March when bitcoin prices began to stage a recovery.

“Equities in both the U.S. and China were still losing value at this time, as was the yuan itself,” said the Report.

“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.”

In addition to strict capital controls, China has imposed strict curbs on cryptocurrency trading and usage for the past three years.

The Chinese central bank first the cracked down on the Chi­nese cryp­tocur­rency sec­tor in Sep­tem­ber 2017, with is­suance of the “Pub­lic No­tice Con­cern­ing the Pre­ven­tion of Cryp­tocur­rency Is­suance Fi­nan­cial Risk” (关于防范代币发行融资风险的公告). 

The No­tice pro­hib­ited in­di­vid­u­als and or­gan­i­sa­tions from en­gag­ing in ICO’s, called for the im­me­di­ate sus­pen­sion of all cryp­tocur­rency fi­nan­cial ac­tiv­i­ties, and for in­di­vid­u­als and or­gan­i­sa­tions that had raised funds via cryp­tocur­rency is­suance to make arrange­ments for re­pay­ments to in­vestors.

The No­tice also stated that “so-called cryp­tocur­rency fi­nanc­ing and trans­ac­tion plat­forms” are pro­hib­ited from en­gag­ing in trans­ac­tions in­volv­ing vir­tual cur­rency, the con­ver­sion of vir­tual cur­ren­cies into fiat money, and the pro­vi­sion of ser­vices in­clud­ing pric­ing and in­for­ma­tion in­ter­me­di­a­tion in re­la­tion to vir­tual cur­ren­cies.

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