For years, Chinese crypto investors have relied on USDT and other dollar-pegged stablecoins as a safe harbor from market volatility. But a dramatic shift in currency dynamics is forcing them to reconsider: what happens when the “stable” coin loses value against your home currency?
Over the past six months, the offshore renminbi has surged from 7.4 to 7.06 against the dollar, marking its strongest level in a year. While this appreciation benefits China’s broader economy, it creates an uncomfortable reality for stablecoin holders—their dollar-denominated assets are quietly bleeding value when measured in yuan terms.
The Perfect Storm Against Dollar Holdings
The mathematics is straightforward but painful. A Chinese investor who converted 100,000 yuan to USDT in April at 7.4 would now receive only about 95,400 yuan when converting back at 7.06—a 4.6% loss without touching a single volatile crypto asset.
This isn’t a temporary blip. The dollar index has fallen nearly 10% this year as weak US employment data and aggressive Fed rate cuts have triggered massive unwinding of carry trades. Meanwhile, China’s stock market rally—with the Shanghai Composite breaking 4,000—has attracted foreign capital, further strengthening the yuan.
Additionally, China’s trade settled in RMB more than doubled between January and July. Corporations increased hedging with financial contracts, boosting practical RMB demand beyond speculation.
Goldman Sachs research suggests that every 1% yuan appreciation is correlated with a 3% gain in Chinese equities, creating a self-reinforcing cycle that could push the currency even higher.
USDT: From Safe Haven to Risk Asset
The change means dollar stablecoins are no longer a reliable hedge for Chinese crypto users. The combination of a weaker USD and a stronger RMB reduces USDT’s local purchasing power.
Tighter regulations deepen this challenge. In May, China’s central bank and 13 ministries officially named stablecoins as a concern in anti-money laundering and foreign exchange oversight. Recent statements caution that stablecoins lack legal status and are vulnerable to illegal use, indicating a possible increase in enforcement.
“China’s central bank has issued a fresh warning on stablecoins, calling them a form of virtual currency without legal tender status under its crypto ban. Regulators say they can be used for money laundering, fundraising fraud, and illegal cross-border capital transfers.”
On peer-to-peer markets, the USDT-to-RMB exchange rate has fallen below 7, reflecting both market pressure and regulatory risk premiums. Transaction fees and spreads have also grown.
Chinese Investors Pivot to Tokenized Real-World Assets
To manage eroding savings and increased regulation, Chinese investors are adopting new strategies. Rather than holding USDT, many now prefer on-chain, dollar-denominated real-world assets, such as tokenized US equities and gold. These assets can yield returns or appreciate, potentially offsetting currency losses and regulatory hurdles.
This trend aligns with a global move by institutional investors to tokenize physical assets, blending blockchain with traditional markets. For Chinese crypto holders, these alternatives maintain dollar exposure while offering diversification beyond pure currency bets.
The USDT’s rapid shift from a haven to a risk asset marks a significant change for both the Chinese crypto sector and the RMB. The era of treating stablecoins as risk-free savings accounts may be over for Chinese investors.
