Despite the ban on exchanges in China, the cryptocurrency-based capital flight in the country was over $11.4 billion in 2019.
Crypto Capital Flight in China Over $11 Billion
On the 8th of January 2020, Peckshield, a Chinese-based blockchain security company, published its Global Digital Asset AML Research Report for 2019. The report cited various cryptocurrency trends in China throughout the year.
The study shows that cryptocurrency-based capital flight coming from China was approximately $11.4 billion in 2019. The vast cryptocurrency capital coming from China comes despite the ban on crypto exchanges in the Asian country. The report cited that while 2019’s figure was below the $17.9 billion recorded in 2018, it was higher than 2017’s $10.1 billion.
The cryptocurrency-based capital flight is unregulated due to the government’s ban on crypto exchanges and China’s tough stance towards cryptocurrencies. Despite the Chinese government and the People’s Bank of China (PBoC) banning local exchanges in 2017, citizens of the country still access cryptocurrencies via over-the-counter platforms and other offshore crypto exchanges. As a result of this, Chinese residents are still leveraging cryptocurrencies on a regular basis, thanks to their access to OTC platforms and foreign exchanges.
While the $11.4 billion cryptocurrency-based capital flight in China sounds enormous, it represents less than 1% of the country’s foreign exchange reserve. According to Peckshield, the flow of funds using cryptocurrencies has been massive globally. Despite the increasing use of cryptocurrencies, the definition of Bitcoin in most countries still remains unclear.
The study pointed out, with reference to the international unregulated capital flows, that,“The flow of funds using digital assets as a carrier has been huge internationally, but the legal definition of digital assets such as Bitcoin in different countries is still very vague, meaning that these liquid funds have not been reasonably regulatory compliance.”
Peckshield’s study added that the current unregulated asset flow for cryptocurrencies has taken a significant market share. As a result of this, compliance in the crypto sector has become an urgent matter and one that urgently needs to be addressed.
MLM Crypto Scams and Darknet Market Bitcoins Rise
The Peckshield study discussed other trends in the cryptocurrency sector. They used full nodes from various blockchains and parsed the public data storage files in real-time, which came from networks such as ETH, BTC, EOS, and TRX.
Several multi-level-marketing crypto scams have plagued China as well as other regions around the world. Peckshield mentioned a Ponzi scheme, OneCoin, was able to siphon over $4 billion from participants before the scam ended. Another project, Plustoken, was able to defraud Chinese and other investors of over 200,000 BTC, 780,000 ETH, and 26 million EOS while it lasted. The research also shows that the PlusToken project scammed over 3 million people, and its effect was felt globally.
The use of Bitcoin in the darknet market (DNM) also increased substantially in 2019. The report shows that 334,329 BTC flowed into DNMs in 2018. The figure rose to 546,825 BTC the following year. Peckshield conducted in-depth research into the DNM page structures and content and found a large number of digital addresses within the dark web. The study further found out that although only a small fraction of the DNM funds go into major trading platforms, a small amount of the funds are transferred to crypto exchanges every day.