Bitcoin Macro Trend Unaffected by Chinese Investors’ $50B Tether Exodus

Published at: Aug. 21, 2020

New data from Chainalysis shows Chinese investors reportedly used Tether (USDT) to move nearly $50 billion overseas. This has led some crypto investors to question whether or not Bitcoin price could be impacted by capital flight from China.

Chainalysis researchers said:

“Over the last twelve months, with China’s economy suffering due to trade wars and devaluation of the yuan at different points, we’ve seen over $50 billion worth of cryptocurrency move from China-based addresses to overseas addresses.”

A large portion of the funds were moved through Tether and as this occurred the dominant stablecoin saw its market cap rise to a new all-time high at $12 billion on paper.

Is the situation bullish or bearish?

China, along with several other Asian countries, have strict capital controls that make it difficult for investors to move large sums of money abroad.

If Chinese investors moved tens of billions of dollars in Bitcoin (BTC) or Tether solely to move capital out of China, there is a chance that a large part of it is sold and turned into cash.

Chainalysis emphasized that not all of the $50 billion is capital flight, but it can be considered as 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 moved from East Asia to other regions.

But the company noted that it is unlikely that all of it is capital flight. As such, it is difficult to know what percentage of the funds were moved as a means to transfer capital outside of China. They explained:

“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. Again, it’s highly unlikely that all of this is capital flight.”

If the outflow was purely capital flight being routed into BTC, then this would add selling pressure to Bitcoin. In such a situation, there should be some downturn in BTC price as these investors would be closing their newly opened Bitcoin positions in pursuit of USD or other fiat currencies.

BTC/USD weekly chart. Source: TradingView.com

There is a catch

One variable that complicates the China USDT exodus theory is that in 2020 exchanges have seen their BTC reserves drop to record lows and more investors holding their Bitcoin in cold storage as they expect higher prices in the future.

It is entirely possible that, if the funds were moved for the purpose of capital flight, they could have been sold anytime in the past year.

Hence whether it could apply selling pressure onto the Bitcoin market in the near-term is practically impossible to conclude.

Based on the broad timeframe of the movement of the funds and Tether accounting for a large part of the funds, it is not likely to have a big impact on Bitcoin in the short-term.

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