Tether’s USDT Stablecoin Trades at a Discount in China, Signaling Demand for Stocks

China may have banned crypto trading in 2021, but 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 offshore.

Now, as easing measures by the central bank send stock prices soaring, data points to traders shifting資金回流 from stablecoins like Tether into the dollar — and ultimately, Chinese equities.

Tether’s USDT stablecoin, the world’s most used cryptocurrency, has been trading at a discount at times relative to the dollar since the end of September, according to Dessislava Aubert, senior research analyst at blockchain data firm Kaiko. The emergence of the discount coincided with a series of easing measures by China’s central bank, designed to stem a worsening economic outlook that sent stock prices soaring.

Stablecoins are cryptocurrencies whose value is usually pegged 1-to-1 to assets such as the dollar. They’re used to conduct transactions and as a refuge from the often volatile price swings seen in tokens such as Bitcoin.

“If the traders are rushing to exchange back into fiat currency, it can be inferred 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 because of the ban, has made the dollar the de facto barometer for measuring activity, Kaiko’s Aubert said. The slight discount suggests more demand for dollars and selling of Tethers.

While it’s difficult to measure on exchanges how much of the USDT selling pressure has come from Chinese investors, other platforms present a clearer picture. Binance’s peer-to-peer marketplace shows that Chinese yuan merchants are giving over-the-counter price quotes in the range of 6.78-6.98 per yuan for USDT, 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 brokerage firms 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.

Hand Seng strongly outperforming Bitcoin, funny how many people believe Chinese stocks are speculative — yet it’s now outperforming arguably the most speculative asset — Bitcoin.

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

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