50 billion cryptocurrencies flow out of China: stupid and malicious rumors may bring regulatory pressure

Recently, a report on the Chainalysi report by overseas mainstream media such as Bloomberg and CNBC has attracted widespread attention.

Bloomberg reported that China has transferred $50 billion in crypto assets abroad in the past year. The article said that according to Chainalysis' latest research, about $50 billion in cryptocurrency assets have left China in the past year, which may indicate that investors are circumventing rules that limit how much capital they are allowed to transfer from the country. CNBC also made a similar report.

As mainstream overseas financial media, it is surprising that Bloomberg and CNBC reported obvious errors.

First, the 50 billion reported does not refer to China, but to East Asia.

We can see from the full text of the Chainalysis report that the article points out that despite the highest proportion of internal activities, East Asia still sends more cryptocurrency to foreign addresses than any other region. More than $50 billion was sent from East Asian addresses to addresses in other regions, and the report judged that some of these activities represented capital flight from China.

It can be seen that the article emphasizes East Asia from beginning to end. In addition to China, East Asia includes at least two huge cryptocurrency markets, Japan and South Korea. Bithumb, the largest exchange in South Korea, and Bitflyer, the largest exchange in Japan, are ranked fifth and eighth respectively in the CMC ranking. We cannot know China's share of the 50 billion, but it certainly does not account for the majority.

Second, don’t look at the proportions but talk about numbers.

The report also said that Western Europe transferred $38 billion in crypto assets to the world. However, Western Europe's cryptocurrency trading volume is much smaller than that of China. The report also pointed out that East Asia's trading volume is 78% higher than that of the second largest region, Western Europe. From this perspective, Western Europe's transfer of crypto assets to the world accounts for a much higher proportion of its total trading volume than East Asia.

Third, the argument of transfer itself is untenable.

Cryptocurrency is not a country’s sovereign currency, and it is even more difficult to identify which region a wallet address comes from. A large Chinese user may store BTC in the US exchange Coinbase, and a European player may also trade contracts in an exchange operated by a Chinese team. In fact, the main players of exchanges operated by Chinese teams such as Binance, Bybit, and Kucoin are all from overseas.

So what exactly does Chainalysis use to determine so-called outflows and transfers?

From the report, it seems that the most likely scenario is based on the classification of exchanges. Chainalysis divides the mainstream exchanges from East Asia into five: Bitflyer (Japan), Bitbank.cc (Japan), Bithumb (South Korea), Huobi (China) and OKEx (China), and then determines the so-called outflow of crypto assets based on the inflow and outflow of the exchanges.

This essentially disproves the rumor of 50 billion outflow from China, because three of the five statistical targets are from Japan and South Korea. In addition, it is also "playing rogue" to only talk about outflows without talking about inflows. This can only show to some extent that East Asia is more active in cryptocurrency, for example, there are many quantitative teams doing cross-exchange arbitrage.

The division among the five companies is also somewhat funny. If Huobi users transfer to Binance to participate in 1EO, trade contracts on Bybit, or mine in a decentralized exchange pool, will it be classified as "asset transfer"?

In the final analysis, in addition to the misunderstanding of traditional financial media, Chainalysis's arguments are also untenable and the argumentation process is very unprofessional. But why did he do this? In fact, it was because of profit.

According to news reports, Chainalysis' main client is the U.S. government, so it often exaggerates and exaggerates the crime problems of cryptocurrency, so that more government departments will pay Chainalysis to assist in handling illegal and supervisory issues involving cryptocurrency. The U.S. Internal Revenue Service is Chainalysis' largest government client, with a contract amount of up to $4.1 million paid in the past five years.

The media and Chainalysis’ erroneous reports may bring regulatory pressure to China’s cryptocurrencies, as they have widely portrayed the outflow of crypto assets as a result of the Chinese government’s strict control of foreign exchange and economic collapse.

The facts are of course wrong: First, China was the first country to control the epidemic, with a growth of 3.2% in the second quarter. Moody's raised its forecast for China's economic growth in 2020; second, although cryptocurrencies are developing rapidly, compared with China's traditional money laundering channels and underground banks, they still only account for a very small proportion. China did not even spend too much energy considering cryptocurrencies when formulating the new "Money Laundering Law"; third, China's mainstream cryptocurrency exchanges, such as Huobi and OKEx, have good communication with regulators, and the supervision of fiat currency-cryptocurrency channels is particularly strict. It is impossible to transfer RMB out through cryptocurrency at will.

But what’s a bit bad is that with the erroneous reports from media such as Bloomberg and CNBC, and the copying and spread of various Chinese marketing accounts, cryptocurrency seems to be equated with capital flight from China.

"The world's great wealth transfer! Cryptocurrency worth 50 billion US dollars flowed out of China within a year", "50 billion US dollars of cryptocurrency quietly flowed out of China!", "50 billion fled abroad in a year, digital currency has become the last channel for capital to flee China!" These brainless exclamation marks filled headlines are endless.

According to the logic of supervision, public opinion will indeed attract the attention of decision-makers when it reaches a certain level. At present, there is internal controversy in China regarding the compliance of cryptocurrencies, and conservative tendencies prevail. In the traditional planned economy, capital outflows will indeed touch the nerves of some conservatives. Industry media and mainstream institutions need to strengthen clarification efforts to jointly protect the industry and promote its compliance dawn as soon as possible.

Full report:

https://blog.chainalysis.com/reports/east-asia-cryptocurrency-market-2020