Chinese citizens withdraw their cryptocurrencies to exchanges outside the country. In 2020, the flight of cryptocurrencies abroad exceeded that of 2019 by 51%.
According to a report, users withdrew USD 17.5 billion worth of Bitcoin (BTC) and other cryptocurrencies from China to overseas exchanges in 2020. This represents an increase of 51%, compared to more than USD 11.4 billion the previous year, according to Peckshield.
This blockchain security consultancy used the CoinHolmes browser to trace addresses that they consider high risk. The firm estimated the volume of China’s “flight of cryptocurrencies” through the balance between the world’s major exchanges.
The analysis of the flow of transactions between high-risk addresses and exchanges is possible through this relationship. Peckshield noted that this happens quite often.
They marked some of the addresses as high risk since the transactions allegedly come from illegal platforms. Among these are gambling websites and dark web markets, among others. They also include withdrawals to overseas exchanges to avoid tax payments, tax garnishment, bank account closings, and financial blockades. In other cases, Chinese users simply seek to protect their identity against KYC policies.
Estimated Volume of Bitcoin Withdrawals
The current Chinese law prohibits cryptocurrency exchanges that can facilitate cash withdrawal of national foreign fiat currencies. “Regardless of the number of transactions, this type of transaction violates China’s foreign exchange regulations. For that reason, they are suspected of money laundering,” according to the report.
The highest volume of Bitcoin withdrawals (172,115 BTC) from Chinese exchanges occurred in March 2020. The peak of withdrawals of US dollars occurred in December 2020, when BTC reached its highest price until then (above USD 29,000). Therefore, the total transfers amounted to almost 120,000 BTC, equivalent to USD 20,000 million.
Peckshield says that it used a broad sample of exchanges, including OKEx, Bitfinex, Bitfinex, Kucoin, Bitstamp, Bittrex, and Coinbase, among others. They monitored a total of 100 million exchanges, in addition to data from the World Bank.
However, they say that the results are conservative since the volume of withdrawals abroad could exceed their estimates.
China Joins Cryptocurrencies
The Chinese authorities hinder foreign exchange operations with other national fiat currencies in the country. However, they have become a cryptocurrency powerhouse. The country has many markets and exchanges, as well as great processing power in cryptocurrency mining.
China recently completed a digital yuan test, in which they distributed 200 digital yuan to 100,000 citizens. They are also testing the first ATMs and debit cards for their future national cryptocurrency.
However, China should not issue a national cryptocurrency while still limiting the trading of other cryptocurrencies. This would lead to an increase in withdrawals, as a consequence of the disappearance of incentives to continue operating in the country.
In addition to investors and money changers, the mining industry in China would also flee. They would seek the regulatory, tax, and geographic advantages that countries like the United States and Russia provide.
By Alexander Salazar
