Why Chinese Traders Are Flocking to Stocks Over Cryptocurrencies?

Chinese Investors Reconsider Cryptocurrency Amid Stock Market Surge

Recent trends indicate a notable shift among Chinese investors, moving away from digital currencies and redirecting their attention to the burgeoning stock market.

Although China implemented a ban on crypto trading in 2021, many residents have continued to navigate around these restrictions by utilising overseas accounts and exchanges to engage in cryptocurrency transactions.

This practice is largely motivated by a desire to evade capital controls and transfer assets offshore.

Tether’s Discount Signals Market Sentiment

The world’s leading stablecoin, Tether’s USDT, has recently been observed trading at a discount against the dollar, particularly since the end of September.

Dessislava Aubert, a senior research analyst at blockchain data firm Kaiko, notes that this discount aligns with a series of easing measures introduced by China’s central bank to counter a deteriorating economic outlook.

These measures have resulted in a surge in stock prices, reflecting a shift in investor sentiment.

Stablecoins, typically pegged 1-to-1 to assets like the dollar, are often utilised for transactions and as a safe haven during volatile market conditions.

Livio Weng, CEO of the Hong Kong-based crypto exchange Hashkey, suggests that the current trend of traders converting back to fiat currency indicates a panic-driven rush towards Chinese stocks.

He remarked,

“If the traders are rushing to exchange back into fiat currency, it can be inferred that they are panic buying Chinese stocks.”

Absence of USDT/Yuan Trading Pairs Influences Market Dynamics

Due to the crypto trading ban, there are no USDT/Chinese yuan trading pairs available on exchanges, making the dollar the primary gauge for measuring market activity.

Aubert explains that the slight discount in Tether’s value indicates a heightened demand for dollars and a corresponding increase in the selling pressure on Tether.

Determining the precise amount of USDT selling pressure stemming from Chinese investors is complex; however, data from other platforms provides a clearer perspective.

Binance’s peer-to-peer marketplace reveals that Chinese yuan merchants are quoting over-the-counter prices for USDT in the range of 6.78 to 6.98 per yuan.

In contrast, the offshore yuan is trading at 7.07 per dollar in traditional markets.

Correlation Between Stock Market and Cryptocurrency Trading

Annabelle Huang, managing partner at Amber Group, a digital-asset investment firm in Singapore, highlights the correlation between the demand for USDT and trading onshore A shares.

Huang observed that some brokerage firms even remained operational during China’s recent Golden Week holidays to onboard new clients, emphasising the robust interest in stock trading.

“We can see the correlation there with demand to trade onshore A shares,” Huang stated, indicating that institutional interest is also growing in the stock market.

Laura Vidiella del Blanco, head of business development and strategy at the New York-based crypto hedge fund MNNC Group, asserts that some institutional investors are reallocating their portfolios towards Chinese stocks.

A Surge in Chinese Stock Market Activity

From 23 to 30 September 2024, the Shanghai Composite Index experienced a remarkable increase of 21%, closing just before the market halted for the holiday.

Vidiella del Blanco mentioned,

“These are mostly allocators in Asia who are familiar with the market and have multiple strategies besides digital assets.”

This surge illustrates a decisive pivot in investor focus, favouring traditional equities over cryptocurrencies.

Unprecedented Inflows in OTC Markets

Despite the ongoing crypto trading ban, estimates from blockchain intelligence firm Chainalysis Inc. indicate that China’s over-the-counter (OTC) brokers are witnessing “unprecedented” inflows this year.

This trend reflects the continued demand from Chinese investors for cryptocurrencies, reflecting an enduring interest in the digital asset space.

“First time people wish the national holiday is shorter perhaps, pretty incredible move,” Huang remarked, illustrating the fervour with which investors are responding to the market conditions.

The current climate suggests that while cryptocurrencies continue to attract attention, the allure of the Chinese stock market is becoming increasingly prominent.