China’s Stablecoin Crackdown: Defying Market Frenzy in 2025

Beijing slams the brakes on crypto's safest harbor—just as demand goes parabolic.

The Iron Fist Meets Digital Dollars

While traders pile into stablecoins for refuge from crypto volatility, China's Great Firewall gets an upgrade—blocking promotions, throttling adoption, and leaving billions in liquidity twisting in the wind. No explanations, just firewall rules.

Capital Control 2.0

Observers whisper about yuan defense mechanisms. If citizens ditch state-controlled digital currency for dollar-pegged alternatives, capital flight risks explode. The PBOC would rather strangle innovation than lose grip on monetary policy—classic 'cutting off the nose to spite the face' economics.

Black Markets Licking Their Chops

Every restriction breeds workarounds. OTC desks already report surging USDT demand via backchannels. When will regulators learn? Banning financial tech only fuels the shadow economy—and lines pockets of middlemen who’ll sell you stablecoins at a 10% markup, 'for compliance reasons.'

China has told brokers, think tanks, and financial institutions to stop promoting stablecoins – no research reports, no seminars, no hype.

The orders, issued in late July and early August, are aimed at cooling the growing interest in the sector. Regulators are worried that stablecoins could be used for fraud in mainland China, and that too much excitement could trigger a “herd rush” into risky investments.

Here are the details. 

Demand is Booming Despite the Ban

Even with China’s blanket ban on crypto transactions, over-the-counter (OTC) trading is alive and well. Chainalysis estimates that $75 billion worth of digital assets changed hands through OTC channels in the first nine months of 2024.

“Chinese policymakers don’t favor too much fanfare in some topics just to avoid a herd rush to any particular asset class,” said Christopher Wong, currency strategist at Oversea-Chinese Banking Corp. 

Crypto demand might be strong, but Beijing wants it contained.

Hong Kong’s Different Playbook

While mainland regulators clamp down, Hong Kong is moving in the opposite direction. 

On August 1, the city’s new stablecoin law came into effect, making it one of the first places in the world to regulate fiat-backed stablecoin issuers.

It’s a big step in Hong Kong’s plan to become a global hub for digital assets. But the law comes with strict conditions. Issuers must verify the identity of every stablecoin holder – a KYC requirement that many in the industry say will hurt adoption and strip stablecoins of their privacy benefits.

“This is a bit too strict and not good for acquiring users,” said Bo Tang from the HKUST Institute for Financial Research, noting that cross-border businesses could be hit hardest.

A Bigger Global Fight

The debate over stablecoins is not just a China-Hong Kong story. Around the world, regulators are weighing how these dollar-pegged assets could affect monetary policy, inflation, and the banking system.

Supporters say stablecoins are fast, cheap, transparent, and – unlike cash – easy to trace. In 2024, illicit crypto activity made up just 0.14% of blockchain volume. In places like the US and EU, new rules such as the Genius Act and MiCA aim to make them safer while supporting innovation.

China Holds the Line

China’s latest orders show it’s not ready to open the stablecoin door just yet. Hong Kong may be running ahead, but Beijing is keeping its grip tight. Are they falling behind? This choice will be closely watched.