The news of Beijing’s national digital currency and the ensuing regional economic turmoil shook the East Asian crypto market.

According to a new report from Chainalysis, cryptocurrencies, particularly Tether (USDT), may be contributing to recent Chinese capital flight.

The Chinese government appears to be relying on the world’s fastest-growing financial asset ecosystem for most of its money transfer needs.

This makes East Asia “the closest thing we have to a self-sustaining market.”

Since China banned direct yuan-to-crypto exchanges in 2017, Tether, a dollar-pegged stablecoin, has gained popularity among Chinese traders.

Compared to other regions, East Asia has the lowest share of on-chain volume dedicated to Bitcoin (BTC), at only 51%. The rest is stablecoins, with USDT accounting for 93%.

In June of this year, Tether overtook Bitcoin and became the digital asset that East Asian addresses most frequently received.

Over the last year, over $18 billion worth of Tether East Asia received to overseas addresses. It’s not clear how much of this is due to capital outflows, and it’s impossible to say for sure.

Tether’s Relationship with China

Analysts believe that the yuan’s shifting value over the course of this year, as well as anxieties around the continuing U.S.–China trade war, may be motivating local investors to circumvent capital regulations.

Meanwhile, the government is restricting investments in international real estate and other assets.

Other concerns include a lack of clarity about how Beijing’s planned national cryptocurrency will affect the private digital asset market.

“The blockchain” is more important than “Bitcoin,” according to Mr. Dovey Wan, regional specialist and Primitive Ventures co-founder. Worse, cryptocurrency will lose its unregulated private asset status.

Chinese government policy on cryptocurrency has long influenced which assets traders employ and why they do so.

A similar claim by American broadcaster Max Keiser, but focusing on Bitcoin rather than stablecoins like Tether, which had risen to around $12,000 at the time of his analysis.

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