Chinese crypto investors have long relied on USDT and other dollar-pegged stablecoins as a safety net from market volatility. However, dramatic changes in currency trends are forcing them to reconsider. What happens if a “stable” coin loses value against the national currency?
Over the past six months, the offshore yuan has appreciated against the dollar from 7.4 yuan to 7.06 yuan, the strongest level in a year. While this increase in value benefits the Chinese economy as a whole, it creates an unpleasant reality for stablecoin holders. Their dollar-denominated assets are quietly losing value in renminbi terms.
The perfect storm for Dollar Holdings
Mathematics is simple but difficult. A Chinese investor who exchanged 100,000 yuan to USDT at $7.4 in April would receive only about 95,400 yuan when reconverted to $7.06, a loss of 4.6% if he did not touch any volatile crypto assets.
This is not a temporary phenomenon. The dollar index has fallen nearly 10% this year as weak U.S. jobs data and aggressive Fed interest rate cuts triggered a massive unwinding of the carry trade. Meanwhile, the rise in China’s stock market, with the Shanghai Composite Stock Price exceeding $4,000, has attracted foreign capital and further strengthened the renminbi.
Moreover, China’s renminbi-denominated trade settlements more than doubled between January and July. Companies increased hedging through financial contracts, pushing up actual demand for the renminbi beyond speculation.
Goldman Sachs research shows that every 1% rise in the yuan is correlated with a 3% rise in Chinese stocks, creating a self-reinforcing cycle that could push the yuan higher.
USDT: From safe haven to risk asset
This change means that the dollar stablecoin is no longer a reliable hedge for Chinese crypto users. The combination of a weaker US dollar and a stronger RMB reduces the local purchasing power of USDT.
Tighter regulations will exacerbate this challenge. In May, China’s central bank and 13 ministries formally listed stablecoins as a concern in anti-money laundering and foreign exchange monitoring. Recent statements have warned that stablecoins have no legal status and are vulnerable to illegal use, suggesting a possible crackdown.
“China’s central bank has issued a new warning about stablecoins, saying they are a type of virtual currency that does not have legal tender status under the crypto ban.Regulators say stablecoins can be used for money laundering, financing fraud and illegal cross-border capital transfers.”
In the peer-to-peer market, the USDT to Renminbi exchange rate fell below 7, reflecting both market pressures and regulatory risk premiums. Trading fees and spreads have also increased.
Chinese investors pivot to tokenized real-world assets
To cope with declining savings and tightening regulations, Chinese investors are adopting new strategies. Many people now prefer on-chain dollar-denominated real assets such as tokenized US stocks or gold to holding USDT. These assets can generate income or appreciate in value, potentially offsetting foreign exchange losses and regulatory hurdles.
This trend coincides with a global movement by institutional investors to merge blockchain with traditional markets and tokenize physical assets. For Chinese crypto holders, these alternatives offer diversification beyond pure currency betting while maintaining dollar exposure.
USDT’s rapid transition from a haven to a risk asset marks a significant shift for both China’s cryptocurrency sector and the renminbi. For Chinese investors, the days of treating stablecoins as risk-free savings accounts may be over.
The post Why Chinese Investors Don’t Welcome Dollar Stablecoins Anymore appeared first on BeInCrypto.
