The Chinese government has formally banned cryptocurrency for years, but that hasn’t stopped many of its citizens from trading it anyway—so much so that Chinese investors can influence the crypto markets. The latest example is Tether, whose USDT stablecoin is pegged to the dollar but has recently traded at a small discount. The reason, some economists say, is that Chinese investors have cooled to crypto and are instead seeking to plow their money into the country’s stock market.
USDT has been consistently trading below the price of the U.S. dollar since late September, according to CoinMarketCap. The decline is very slight—last Tuesday, Tether was trading at $0.9995 to the dollar—but the dip does point to a push to dump the stablecoin for yuan and to invest in Chinese stocks, which have surged as a result of the state’s recent stimulus efforts. The 3% to 5% fee to liquidate USDT hasn’t seemed to deter investors who stand to benefit significantly if the Chinese stock market continues to soar the way it has been.
Stablecoins are a type of cryptocurrency that seeks to avoid the volatility associated with other digital assets like Bitcoin by tying its value to a fiat currency, like the U.S. dollar. USDT, which Tether launched in 2014, has become the largest stablecoin by far and has a current market cap of around $119 billion.
USDT became the go-to cryptocurrency in China after 2017, when the government banned citizens from exchanging yuan for crypto and restricted access to all crypto trading websites, according to a study conducted by Chainalysis.
Since then, Chinese investors have treated Bitcoin and other digital assets as a safe haven as the domestic economy has floundered. These investors have evaded restrictions by means of overseas bank accounts, and the use of over-the-counter desks or exchanges like Binance. China’s over-the-counter brokers have attracted a record $75.4 billion in the first part of the year, according to a Chainalysis report, proving that a strong appetite for crypto still remains despite the bans.
China’s stimulus package
The Chinese government announced a vast array of stimulus efforts on Sept. 24 to curtail the country’s economic downturn and hit end-of-year growth targets. These efforts included cutting the reserve requirement ratio by 50 basis points and the seven-day repo rate by 0.2 percentage points. Economists expected these policies to be bullish for crypto, but Bitcoin has not made significant movements, remaining between $50,000 and $70,000.
In the wake of this announcement, the Shanghai Composite Index surged 20%, the highest since May 2023. The Hang Seng China Enterprises Index followed suit, soaring over 25% since late September. The Shanghai Composite Index was closed since the end of September in observance of China National Day and reopened today.
While Tether has been trading above or below the dollar most of the year, it hasn’t experienced massive swings like those seen in its early years. The stablecoin reached its highest and lowest in 2015 at $1.22 and $0.57. For most of 2024, it has oscillated between $1.0022 and $0.9981.
