New data from Chainalysis shows that Chinese investors are likely to use Tether (USDT) to move nearly $ 50 billion overseas. This has led some crypto investors to question whether Bitcoin price may be affected by capital flight from China.
Chainalysis researchers said:
“In the last twelve months, with China’s economy suffering due to trade wars and devaluation of the yuan at various points, we have seen more than $ 50 billion in cryptocurrency shifted from China-based addresses to foreign addresses.”
A large portion of the funds were transferred by Tether and as this happened, the dominant stablecoin saw its market cap rise to a new high of $ 12 billion on paper.
Is the situation bullish or bearish?
China, along with several other Asian countries, has strict capital controls that make it difficult for investors to move large sums of money abroad.
If Chinese investors move tens of billions of dollars into Bitcoin (BTC) or Tether just to move capital out of China, there is a chance that a large portion of it will be sold and converted into cash.
Chainalysis claims that not all $ 50 billion is capital flight, but it can be considered the absolute ceiling. The researchers said:
“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.”
The researchers evaluated wallets based in China and their transactions to addresses in foreign countries. They found that $ 18 billion in Tether was transferred from East Asia to other regions.
But the company notes that it is not likely that it is all capital flight. As such, it is difficult to know what percentage of the funds were transferred as a means of taking over capital outside China. She explained:
“In total, more than $ 18 billion in Tether has been transferred from East Asian addresses to those based in other regions in the last 12 months. Again, it is highly unlikely that this is all capital flight. ”
If the outflow pure capital flight was routed to BTC, then this would add selling pressure to Bitcoin. In such a situation, there should be some decline in BTC price, as these investors will close their newly opened Bitcoin positions in the pursuit of USD like other fiat currencies.
BTC / USD weekly chart. Source: TradingView.com
There’s a catch
One variable that complicates China’s USDT exodus theory is that in 2020 exchanges, their BTC reserves have seen drop to record lows and more investors keeping their Bitcoin in cool storage as they price higher in the future expect.
It is quite possible that, if the funds were transferred for the purpose of capital flight, they could have been sold at any time in the past year.
As a result, it can apply short-term selling pressure to the Bitcoin market, is virtually impossible to close.
Given the broad time frame of the movement of the funds and Tether that account for a large portion of the funds, it is not likely to have a major impact on Bitcoin in the short term.
