The cryptocurrency landscape in China is currently under a cloud of uncertainty following the recent downgrade of Tether”s USDT rating by S&P Global Ratings. On November 26, 2025, the agency lowered USDT”s stability score from constrained to weak, raising alarms across various Chinese crypto forums and social media platforms.
For many Chinese traders, USDT is the primary gateway to international markets, making this downgrade a significant concern rather than just a technical financial adjustment. The report highlighted Tether”s increasing reliance on volatile reserves and ongoing transparency issues as critical factors behind the rating change.
S&P”s report indicated that Bitcoin now constitutes 5.6% of the circulating USDT supply, an increase from the previously noted 3.9%. Furthermore, the agency noted that Tether”s disclosures remain inadequate for assessing the overall safety of its reserves. The firm”s attestation reports for the first three quarters of 2025 revealed that it holds $9.9 billion in Bitcoin and $12.9 billion in gold, which together account for about 13% of the reserves backing $174.4 billion in liabilities.
In addition to cryptocurrencies and precious metals, Tether”s exposure extends to secured loans and corporate bonds, which, while potentially lucrative, pose additional risks during financial instability. Despite the downgrade, Tether maintains over $113 billion in U.S. Treasury holdings, which make up the bulk of its collateral.
The reaction within the Chinese crypto community has been swift and intense. Veteran traders, who have long been skeptical of Tether, dismissed the downgrade, noting that similar concerns have surfaced repeatedly without impacting USDT”s longstanding position. In contrast, others view the downgrade as a serious threat to China”s shadow crypto economy, where USDT serves as the backbone of covert trading activities.
Despite a nationwide ban on digital asset transactions imposed in 2021, underground trading networks have flourished. Traders utilize over-the-counter (OTC) platforms and private brokers to navigate the market, with USDT facilitating conversions from yuan to dollar-pegged assets. A prevalent sentiment among anxious traders was encapsulated in a widely shared post: “If this bomb goes off, the entire cryptocurrency market is finished.”
Some in the community suspect that rival stablecoins like USDC and the newer USD1 may benefit from a decline in confidence in USDT. This theory links the downgrade to a broader pattern of regulatory scrutiny on stablecoins globally, alongside the increasing adoption of USDC in institutional trading.
China has a turbulent history with cryptocurrencies, marked by regulatory crackdowns since 2017 and a total ban on crypto transactions in 2021. Nevertheless, interest in digital currencies has remained strong, with estimates suggesting that over 20 million Chinese citizens held Bitcoin in 2024. The underground ecosystem has grown to rival some openly operating markets, driven by social media platforms like Weibo and WeChat, where investor communities thrive.
USDT has become essential in this system, allowing Chinese investors to access global liquidity without relying on banks or regulated financial institutions. The potential fallout from the recent downgrade could disrupt this fragile network significantly, affecting price movements, liquidity in OTC markets, and peer-to-peer trading dynamics.
As the situation unfolds, traders are left in a state of uncertainty. While some continue to operate as usual, confident in USDT”s ability to maintain its peg, others are devising contingency plans. The coming weeks will be critical in determining whether China”s shadow crypto economy can withstand this latest challenge or if it will enter a tumultuous period reminiscent of the aftermath of the 2021 ban.
