21 Aug 2020
About $50 billion in cryptocurrency assets have left China in the past year, a possible indication that investors are dodging rules that limit how much capital they’re allowed to transfer from the nation, according to new research by blockchain forensics firm Chainalysis.
The controversial cryptocurrency Tether accounted for more than $18 billion of the outflows from East Asia in the period, the firm said Thursday in a report. Tether, a so-called stablecoin because its value is pegged to the U.S. dollar, accounts for 93% of stablecoin use in the region.
“Stablecoins like Tether are particularly useful for capital flight, as their USD-pegged value means users selling off large amounts in exchange for their fiat currency of choice can rest assured that it’s unlikely to lose its value as they seek a buyer,” Chainalysis said in the report.
China limits citizens to moving the equivalent of $50,000 a year out of the country. Wealthy Chinese circumvented this rule in the past by making overseas real estate investments or creating shell companies, Chainalysis said. It’s not known how much of the $50 billion, or the Tether transfers, stem from capital flight.
“Tether has become a U.S. dollar replacement for many people in China,” Dovey Wan, a founding partner of cryptocurrency investment firm Primitive Ventures, said in the report. “Lots of Chinese businesses and merchants, especially those working overseas, now accept Tether.”
Tether is one of the more controversial cryptocurrencies in a market of many questionable coins. In 2019, the state of New York sued Tether and its related company Bitfinex, one of the largest crypto exchanges, over the loss of more than $850 million in client and corporate funds. The Commodity Futures Trading Commission subpoenaed the two companies in 2017 over an allegedly false claim that one U.S. dollar backed every Tether coin.
The companies have said they’ve done nothing wrong in the New York state case. No CFTC decision was issued, and Tether has said it also uses other assets besides the dollar to support coin value. In the meantime, the amount of outstanding Tether has skyrocketed to $12.8 billion from about $2 billion in 2019.
By Matthew Leising, Bloomberg, 20 August 2020
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