One of the most prominent indicators of demand for cryptocurrencies is that some Chinese investors are shifting their attention from digital assets to the country’s surging stock market.
Although China banned cryptocurrency trading in 2021, many mainlanders have continued to use offshore accounts and platforms to buy and sell digital currencies, in part to avoid capital controls and move assets abroad.
The world’s most widely used cryptocurrency, stablecoin Tether USDT, has been trading at a discount to the dollar at times since late September, according to Desislava Obert, a senior research analyst at blockchain data firm Kaiko.
The emergence of this discount coincided with a series of easing measures taken by the Chinese central bank to stem the deteriorating economic outlook, which led to a rise in stock prices.
Stablecoins like Tether are typically pegged 1-to-1 to assets like the dollar, and are used to conduct transactions and as a haven from the extreme volatility of currencies like Bitcoin.
“If traders are rushing to convert to fiat, it can be inferred that they are buying Chinese stocks quickly,” said Livio Wing, CEO of Hong Kong-based cryptocurrency exchange Hashkey.
The dollar is the real measure of activity.
The absence of Tether USDT/CNY trading pairs on crypto exchanges due to the ban has made the dollar the de facto barometer for activity, according to Kaiko’s Aubert. The slight discount indicates increased demand for dollars and selling of Tether.
While it’s difficult to gauge the extent of selling pressure on Tether USDT from Chinese investors on exchanges, other platforms offer a clearer picture. Retail exchange Binance shows that Chinese yuan traders are offering quotes ranging from 6.78 to 6.98 yuan per Tether USDT, while the offshore yuan is trading at 7.07 per dollar in the traditional market.
“We see a correlation with demand for local A-shares,” said Annabelle Huang, managing partner at Singapore-based digital asset investment firm Amber Group, adding that some brokerages were open even during China’s Golden Week holiday “to welcome new clients.”
That demand isn’t limited to retail investors, according to Laura Videla del Blanco, head of business development and strategy at crypto hedge fund MNNC Group in New York. Some of the firm’s institutional investors have shifted their investments toward Chinese stocks.
The Shanghai Composite Index rose 21% from Sept. 23 to Sept. 30, the day the Chinese market was closed ahead of a holiday.
“These are often people who are dedicated to investing in Asia, know the market well, and have multiple strategies besides digital assets,” said Videla del Blanco.
Blockchain intelligence firm Chainalysis Inc. estimates that over-the-counter brokers in China are receiving unprecedented inflows this year, indicating strong demand from Chinese investors for cryptocurrencies despite the ongoing ban.
“For the first time, people are wishing the national holiday was shorter, which is really amazing,” said Huang of Amber.
