China Bans Broker Promotions of Stablecoins to Cool Market Frenzy

Chinese authorities have begun implementing regulatory measures to address the rapid growth and speculative fervor surrounding stablecoins, according to recent reports [1]. These steps include instructing brokerage firms to stop promoting stablecoin products to clients and halting all research and educational activities related to the asset class, such as seminars and academic discussions [1]. The move is part of a broader effort to manage financial risks and stabilize a market that has seen increasing trading volumes and public interest [2].

The regulatory guidance, reportedly issued informally to top brokerages, reflects growing concerns about the potential misuse of stablecoins for illicit activities [1]. Although no official statements have been released by the China Securities Regulatory Commission or the central bank, analysts suggest the move aims to prevent a “herd mentality” among investors and discourage excessive speculation [1].

Despite the ban on cryptocurrency trading in China, over-the-counter (OTC) digital asset trading remains robust. A recent estimate from Chainalysis found that underground OTC trading in China reached approximately $75 billion in the first nine months of 2024 [1]. This has led to increased scrutiny from local authorities, with several provinces issuing fresh risk warnings about the potential for stablecoins to be used in illegal fundraising activities.

In contrast to the mainland, China Hong Kong has taken a more proactive approach to stablecoin regulation. State-backed firms, including CMB International Securities and Guotai Junan Securities, have received licenses to operate in the city’s growing crypto market [1]. This divergence highlights a dual approach to digital assets within China, with the central bank’s governor, Pan Gongsheng, recently acknowledging stablecoins’ potential to reshape international finance, especially amid growing geopolitical tensions in traditional payment systems [1].

The global stablecoin supply, widely used in these transactions, is projected to reach $3.7 trillion by 2030 [1]. As this asset class continues to expand, Chinese regulators are taking early steps to ensure its development remains within the bounds of financial stability. The current regulatory actions are seen as a clear signal to market participants that scrutiny of stablecoins will continue to intensify, particularly for products with risks of misrepresentation or overleveraging [2].

Christopher Wong, a currency strategist based in Singapore, noted that Chinese policymakers prefer to avoid excessive hype to prevent investors from making uninformed decisions [1]. The move is expected to have a cooling effect on the stablecoin market in the short term by limiting access to promotional materials and educational content [2].

Source: [1] China Takes Steps to “Cool Frenzy” Around Stablecoin Market: Report (https://coinedition.com/china-takes-steps-to-cool-frenzy-around-stablecoin-market-report/)

[2] China Tells Brokers to Stop Touting Stablecoins to Cool Frenzy (https://bloomberg.com/latest/crypto)