Over the past year, the protests rapidly intensified and fuelled widespread unrest the month following the start of the demonstrations — especially due to police inaction the night a mob attacked a group of pro-democracy protestors.
The Amun research team has investigated how this unprecedented movement has gradually led to behavior changes regarding the use of cryptoassets, chiefly USD-pegged stablecoins, as a major investment vehicle for promptly fleeing capital controls in an attempt to preserve the wealth of Chinese individuals.
China Money Flowing to Singapore and Stablecoins
Over the past decades, the Asia Pacific region has accounted for almost 40% of the global billionaire population, with China being among the hottest wealth-generating hubs in the world — creating two new billionaires every week. Family offices have increasingly become popular vehicles to manage the wealth of high-net worth families in China or as a means to set up offshore accounts.. But in the midst of capital controls and anti-corruption campaigns, there has been an increasing desire from less-wealthy Chinese families and individuals to move their capital out of China.
The emergence of a China-centred blockchain system, which would undoubtedly make it easier for the Chinese government to oversee and track the financial activity of its citizens, will not meet the rising need for financial freedom among some within China. The recent demonstrations have significantly triggered money flows to primarily Singapore — due to advantages such as long standing rapid air connections with China prior to the COVID-19 pandemic.
Although as an inherently digital, censorship-resistant, and neutral asset, Bitcoin has not been the first cryptoasset of choice to flee renminbi-denominated assets due to market volatility. USD-pegged stablecoins have ended up being just as attractive assets for those seeking to avoid losing large portions of their wealth due to price fluctuations over the short and medium terms. As a matter of fact, QCP Capital a Singapore-based cryptoasset trading firm has witnessed Hong-Kong-based investors fleeing to Singapore and trading stablecoins, predominantly Tether, in an attempt to preserve their wealth.
According to QCP, 80% of capital has poured into stablecoins while the remaining 20% has gone into Bitcoin. This information is unfortunately not publicly available as much of crypto adoption in Asia happens underground especially following the crackdown on crypto exchanges by the Chinese government starting in 2017. For example, in Hong Kong, QCP Capital reported that investors trade Tether physically. This method is mainstream so that they are able to move money away cheaply and quickly compared to setting up an offshore account which might take almost a month due to stringent know-your-customer and anti-money laundering procedures. To mitigate counterparty risk, due to ongoing issues with identity fraud, QCP Capital follows KYC procedures and asks for collateral denominated in stablecoins.
The rising demand for encrypted messaging apps for public gatherings
In an effort to evade public gathering restrictions, as pro-democracy rallies raged in the territory, Hong Kong-based protesters have started to coordinate their actions using encryption-enabled messaging applications such as Telegram. In a similar manner, to meet and initiate trades QCP users communicate via a Telegram group, and many other similar groups owned by OTC desks or ran by regular investors, following a similar trend of building out their community via word-of-mouth growth.
The behavior changes we’ve seen due to these demonstrations are here to stay in the foreseeable future especially as crypto exchanges and other liquidity providers prevent China-based investors from opening accounts due to specific clauses in their terms and conditions — a phenomenon the 21Shares research team discovered in this study.
It is safe to say that stablecoins are becoming a pain-killer product for many investors in such situations. This capital outflow from renminbi-denominated assets to USD-pegged stablecoins will strengthen the US Dollar hegemony as the world’s reserve currency. Nonetheless, with interest-bearing accounts like the one launched by Blockchain.com, there could eventually be capital flowing from stablecoins to Bitcoin by Chinese institutional investors and high-net-worth individuals, especially among tech-savvy cohorts