Based on research conducted by blockchain analysis company Chainalysis, over-the-counter (OTC) Bitcoin trading in China has ‘exploded’ and 99% of Bitcoin spot trades in China were 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.
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 the regions also dominate in more advanced trading platforms such as options and futures trading, making 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, the market capitalization of Tether has massively increased from 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 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 where traders can make their investments using the Yuan. CEO Changepeng Zhao even claimed that users could make their investments using popular services such as Alibaba’s Alipay and Tencent’s WeChat Pay.
However, Alipay has disclosed that there is no official partnership and that the platform closely monitors all transactions and remains compliant with the regulatory framework in China.
Tether remains the dominant force in the stablecoin market
Ever since 2018, Tether dominates in spot trading. The sudden rise of the controversial stablecoin aligns with the decision of the Chinese government who at the time announced that citizens are 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 government ban in 2017 resulted in a rising demand for the stablecoin, as the market capitalization of Tether increased three times since 2018. According to data from CoinMarketCap, Tether goes as far as to surpass assets such as Bitcoin in terms of utility, as the stablecoin features a market capitalization 38 times larger than Bitcoin.
On another note, analysts believe that Tether may not have a long-term future as the Tether Reserve does not cover 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.