Chinese Investors May Be Shifting Away From Cryptocurrencies and Back Into the Stock Market

Tether's USDT stablecoin, the world's most widely used cryptocurrency, has sometimes traded at a discount to the dollar since late September

Bloomberg reports that some Chinese investors are moving away from cryptocurrencies and into the country’s rising stock market.

Although China banned crypto trading in 2021, many mainland residents have continued to use overseas accounts and exchanges to buy and sell digital currencies, in part to avoid capital controls and move assets abroad.

The discount’s rise coincided with a series of easing measures by China’s central bank aimed at halting the deteriorating economic outlook, sending stock prices soaring.

Stablecoins are cryptocurrencies whose value is usually linked 1-to-1 to assets such as the dollar. They are used to carry out transactions and as a refuge from the often volatile price swings seen with tokens like Bitcoin.

“As traders rush to convert back into fiat currency, it can be inferred that they are panic buying Chinese stocks,” said Livio Weng, CEO of Hong Kong-based cryptocurrency 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 measuring activity, according to Kaiko’s Aubert. The small discount indicates increased demand for dollars and Tethers sales.

While it is difficult to gauge on the exchanges how much of the USDT selling pressure is coming from Chinese investors, other platforms are showing a clearer picture. Binance’s peer-to-peer marketplace shows Chinese yuan traders quoting over-the-counter prices between 6.78 and 6.98 per yuan for USDT, while the offshore yuan on the traditional foreign exchange market at 7.07 traded per dollar.

“We see the correlation here with the demand to trade onshore A-shares,” said Annabelle Huang, managing partner at digital investment firm Amber Group in Singapore. Some brokerage firms were even open during the recent Chinese Golden Week holiday to “bring in new customers,” she said.

Demand isn’t just driven by retail investors, said Laura Vidiella del Blanco, the New York-based head of business development and strategy at crypto hedge fund MNNC Group. Some of the company’s institutional investors are shifting their allocation to Chinese stocks.

The Shanghai Composite Index rose 21% from September 23 to September 30, the day before the Chinese market closed for the holiday.

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

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

“Maybe the first time people wish the National Day was shorter is an incredible move,” said Amber’s Huang.

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