China’s Underground Crypto Economy Thrives Despite Strict Bans

Despite China’s strict regulations on digital assets, its underground crypto economy is thriving, particularly through peer-to-peer stablecoin payments. Chainalysis estimates that China generated at least $176 billion in crypto activity over the 12 months ending in June 2026, with 59.1% of that activity occurring through domestic peer-to-peer transfers rather than exchanges or other centralized platforms. This marks a significant shift, as the share of peer-to-peer transfers was 3.5 times higher than in the previous period, diverging from most major crypto markets where exchanges remain the primary entry and exit point.

The shift has been especially notable in stablecoins, with domestic stablecoin payment activity accelerating around March 2025 and continuing to grow for 13 consecutive months. The amount of new activity added each month rose from roughly $240 million in March 2025 to almost $5 billion about a year later. This growth was concentrated across transaction sizes consistent with individuals and smaller businesses, with stablecoin volumes below $100 jumping 996%, transfers between $100 and $1,000 increasing 1,057%, and activity between $1,000 and $10,000 climbing 1,321%.

Chainalysis suggests that tighter integration of China’s social-credit system with financial and internet infrastructure may be encouraging some users to transact outside traditional payment channels. The firm noted that individuals whose access to conventional financial services has been restricted could potentially turn to crypto, while others may use stablecoins to settle transactions outside monitored banking or e-commerce platforms. However, this explanation is described as a working hypothesis rather than evidence of causation.

The way stablecoins move through China-attributed wallets suggests users may be treating them as transactional liquidity. Chainalysis calculated the annual turnover of self-custodied stablecoin holdings in China at 33.2 times, more than triple the global benchmark of 9.3 times. China-attributed wallets held an average of about $3.1 billion of stablecoins during the period but transferred $104.1 billion across 18.1 million transactions, indicating that the same pool of tokens was repeatedly returned to circulation rather than remaining dormant in wallets.

This P2P structure distinguishes China from neighboring markets, where most crypto economies depend heavily on regulated exchanges. The shift toward direct wallet transfers creates a potential challenge for Beijing as stablecoins become easier to move without relying on domestic financial intermediaries. For stablecoin issuers and crypto service providers, China represents a large potential source of demand that remains difficult to serve directly due to regulatory restrictions, potentially leading to continued growth through offshore platforms and self-custody.