Chinese Crypto Investors Shift Away From Digital Assets and Back to Surging Stock Market

Tether's USDT stablecoin, the world's most used cryptocurrency, has been trading at a discount at times relative to the dollar

Demand for cryptocurrencies appears to be waning among some Chinese investors, who are instead shifting their attention back to the nation’s surging stock market, according to one of the best available gauges.

Despite China outlawing cryptocurrency trading in 2021, many mainlanders have continued using overseas accounts and exchanges to buy and sell digital currencies, partly to get around capital controls and move assets offshore.

However, the Tether’s USDT stablecoin — the world’s most used cryptocurrency — has at times traded at a discount to the dollar since late September, according to Dessislava Aubert, senior research analyst at blockchain data firm Kaiko. The discount emerged as the Chinese central bank rolled out a series of easing measures in response to a worsening economic outlook that’s sent stock prices rallying.

Stablecoins are crypto tokens typically pegged 1-for-1 to assets like the dollar and are used to conduct transactions and as a haven from the often-wild price swings seen in tokens like Bitcoin.

“If traders are rushing to exchange back into fiat currency, we can infer that they are panic buying Chinese stocks,” said Livio Weng, chief executive officer of Hong Kong-based crypto exchange Hashkey.

The absence of USDT/Chinese yuan trading pairs on crypto exchanges due to the ban has made the dollar the de facto barometer for activity, Kaiko’s Aubert said. The slight discount suggests more demand for dollars and selling of Tethers.

While it’s hard to gauge on exchanges how much of the USDT selling pressure is coming from Chinese investors, other platforms paint a clearer picture. Chinese yuan merchants on Binance’s over-the-counter marketplace are seen offering quotes for USDT in the range of 6.78-6.98 per yuan over the counter, while the offshore yuan trades at 7.07 per dollar in the traditional currency market.

“We can see the correlation there with demand to trade onshore A shares,” said Annabelle Huang, managing partner at digital-asset investment firm Amber Group in Singapore. Some brokerages were even open during China’s recent Golden Week holidays to “onboard new customers,” she said.

The demand isn’t just being driven by retail investors, according to Laura Vidiella del Blanco, the New York-based head of business development and strategy at crypto hedge fund MNNC Group. Some of the firm’s institutional investors are shifting allocations to Chinese stocks.

The Shanghai Composite Index jumped 21% from Sept. 23 to Sept. 30, the day before China’s market closed for the holiday.

“These are mostly allocators in Asia who are familiar with the market and have multiple strategies besides digital assets,” Vidiella del Blanco said.

Blockchain intelligence firm Chainalysis Inc.’s data shows that China’s over-the-counter brokers are attracting “unprecedented” inflows this year, in a sign of the strong demand from Chinese investors on cryptocurrencies despite the ban.

“First time people wish the national holiday is shorter perhaps, a pretty incredible move,” said Amber’s Huang.

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