China: Crypto Ban 2017 has Fueled the Adoption of Tether USDT

Based on research conducted by blockchain analysis company Chainalysis, over-the-counter (OTC) Bitcoin trading in China has ‘exploded’. Due to the China crypto ban two years ago, 99% of Bitcoin spot trades in China are now made using Tether, the sector’s most popular stablecoin.

The company also found out that the national yuan almost does not participate in cryptocurrency trades, which is strange considering that neighboring markets such as Korea and Japan conduct their trading mostly in traditional fiat currencies.

The trade war fuels the cryptocurrency adoption

According to their research, 40% of the top-50 crypto exchanges are located in the Asia-Pacific region. The exchanges accounted for 35% of all received Bitcoins in 1H19. Exchanges from these regions also dominate more advanced trading platforms such as options and futures trading, making up almost 90% of all 2.36 billion cryptocurrency contracts.

The rise of cryptocurrency trading in China during an uncertain trade war may lead to a bullish market trend, as some analysts believe that the start of the Beijing-Washington tension heavily influenced the rise of Bitcoin at the start of the year.

Furthermore, as a result of the China crypto ban, the market capitalization of Tether has massively increased in August 2017. According to the chief economist at Chainalysis Philip Gradwell, people should focus on price movements on larger Asian crypto exchanges. “There is probably going to be a large amount of liquidity there that, for example, these OTC brokers will be providing. It can move very fast,” stated Gradwell.

To make matters even more interesting, one of the sector’s largest exchanges in the world, Binance, recently introduced a peer-to-peer (P2P) trading system for Chinese users enabling traders to invest with Yuan. CEO Changepeng Zhao even claimed that users could invest using popular services such as Alibaba’s Alipay and Tencent’s WeChat Pay.

However, Alipay has since disclosed that there it is not an official partner of Binance. The platform also reminded users that it closely monitors all cryptocurrency transactions and is still compliant with the regulatory framework in China.

Tether remains the most popular stablecoin

Ever since 2018, Tether dominates in spot trading. The sudden rise of the controversial stablecoin aligns with the China crypto ban two years ago. Back then, the Chinese government had announced citizens were prohibited from trading yuan for cryptocurrency through exchanges.

As the Chinese market is one of the largest in the cryptocurrency sector, traders resorted to adopting P2P and OTC exchanges which are considered legal by Chinese laws. In that regard, traders can freely participate in the sector as long as they use P2P or OTC exchanges and purchase cryptocurrencies with the Tether stablecoin.

The China crypto ban 2017 resulted in a rising demand for the stablecoin, which caused the market capitalization of Tether to increase three times since 2018. According to data from CoinMarketCap, Tether even surpasses assets such as Bitcoin in terms of utility, as the stablecoin has a market capitalization 38 times larger than Bitcoin.

On another note, analysts believe that, despite its success after the China crypto ban, Tether may not have a long-term future. The main reason for this is that they doubt the Tether Reserve covers all of the circulating Tethers in the market. The company behind the stablecoin Bitfinex currently faces a class-action lawsuit due to an $850 million loss which the company covered with Tether funds.