The demand for cryptocurrencies among Chinese investors has risen due to two significant factors — the on-going tariff war between the U.S. and China and also the weakening of yuan. The economy of China has been worsening since the feud between the two countries started. Investors now want to switch their money from yuan to cryptocurrency because the former has been lowering in value.
Effects of the On-Going Trade War
Experts in the trading world have noticed an increase in the activity among Chinese traders. Notably, the over-the-counter brokers, who are the middlemen for buyers and sellers, are getting a lot more work than usual. Though it is difficult to measure the activity in crypto trading, it is apparent that some of the larger investors have shifted their currency from yuan to cryptocurrencies.
It is possible to track the transactions that involve the digital wallet, like sending and receiving coins, with the blockchain technology. However, it is difficult to find out the location of the traders. It is even more challenging in China since the government has banned crypto platforms since 2017. This ban has led to very minimal data on this sector in the nation.
The rising tensions between the U.S. and China have hurt both countries’ economy. The yuan is lowering in value, which has made investors believe that cryptocurrencies would be a much better choice, at least as of this moment. Also, data have recently shown that the Chinese industry is experiencing the lowest output they’ve had in 17 years. This news comes as a shock as China is the second-largest economy in the whole world.
Last August 5, the value of yuan had a sharp fall, which occurred together with a rise in cryptocurrencies. Bitcoin gained 7% while there was a 9% surge in overall cryptocurrencies. This occurrence has led analysts to speculate that Chinese investors sold their yuan and bought other digital currencies. China continues to implement heavy capital controls, thus limiting their citizens from transferring their money offshore, making cryptocurrencies a much better choice.
Also, a lot of internet companies based in China have stopped hiring and are even laying off some employees due to the trade war. You can see how great an impact the tariff war has had on the overall economy of the country.
The U.S. dollar surpassed 7 yuan, which led to an increase in activity in crypto trading. Specifically, in eToro, a social trading brokerage company, volumes of all cryptos almost doubled from the week before. It occurred not only in China but also in Hong Kong and the rest of the world.
Since the Chinese government banned trading in 2017, many Chinese investors shifted to OTC venues and WeChat groups to do their transactions. They remain active despite the ban. They try not to get caught by using alternative platforms.
For the past three months, OTCs have been receiving more than double work from Chinese traders. Some investors try to earn money by simultaneous buying and selling among the yuan, Hong Kong dollar, and a stablecoin backed by the U.S. dollars called Tether.
Diar, a research firm focused on digital currency, shared that Tether’s transactions among Chinese traders have totaled to $10 billion in the first half of the year alone. For the whole year of 2018, the operations for Tether only amounted to $18 billion. From the way things are currently going, Tether could earn a lot more for this year compared to last year.
Because Chinese investors are having difficulty moving their money in and out of the country, Tether has become an attractive medium for them. That is because it allows them to go undetected by the Chinese government as it is challenging to get tracked.