On December 5, 2025, a landmark event occurred in the cryptocurrency market: in the OTC (over-the-counter) trading sections of major exchanges such as Binance, the price of 1 USDT—a stablecoin pegged to 1 US dollar—against the Chinese yuan broke through the psychological threshold of 7.0, with quotes dropping as low as 6.99 yuan.
In stark contrast, the central parity rate of the yuan against the US dollar published by the State Administration of Foreign Exchange remained stable at around 7.07 yuan during the same period. The OTC price of USDT fell below the official exchange rate, resulting in an “inverted price”.
This negative premium of about 1% reveals that under strong regulatory signals, the market’s underlying structure and liquidity are undergoing dramatic changes.
I. Direct Cause: Regulatory Meeting Sets Tone, Cracks Down on Illegal Currency Exchange
The direct and decisive factor behind this price fluctuation came from the clear and strict signals released by regulators at the end of November.
● Meeting Sets Tone: On November 28, the People’s Bank of China and several other departments jointly held a coordination meeting to crack down on speculation and trading of virtual currencies. Multiple blockchain media and community analyses pointed out that the meeting specifically targeted illegal cross-border remittance activities using stablecoins.
● Market Reaction: The market interpreted this signal as a precise warning against gray capital channels. OTC traders (known as “U merchants”), who are the core of OTC market liquidity, generally adopted strategies to suspend or scale back their coin-accepting businesses due to concerns over the risk of bank account freezes.
● Supply-Demand Reversal: The collective “retreat” of traders instantly reversed the market landscape. A large number of USDT sell orders seeking cash-out flooded the market, while buy-side liquidity shrank sharply, causing prices to come under pressure and quickly break through the key 7.0 yuan level.
II. Macro Background: Weakening Dollar and Market Capital Rotation
In addition to direct regulatory pressure, broader macroeconomic expectations and changes in market sentiment have created an external environment for the price decline.
● Expectations of a Weak Dollar: The market’s anticipation of the Federal Reserve entering an interest rate cut cycle has been strengthening, putting pressure on the US dollar index. The yuan faces appreciation pressure against the dollar, which naturally drags down the exchange rate of USDT, a dollar-pegged stablecoin.
● Internal Rotation in the Crypto Market: Some analysts point out that expectations of looser US dollar liquidity have prompted some funds to view crypto assets as new allocation options, leading to recent price increases in major cryptocurrencies such as ETH. This “moving out of stablecoins and into the market” behavior, where funds flow from stablecoins to risk assets, indirectly increases selling pressure on USDT.
III. Industry Interpretation: Targeted Pressure on Specific Violations
This event has sparked widespread discussion within the industry, with consensus that this is a targeted regulatory stress test on illegal activities within the stablecoin ecosystem, rather than a blanket denial of the technology itself.
● Clear Target: The industry generally believes that the regulatory focus is not on blockchain technology or the compliant financial applications of stablecoins, but rather on cracking down on their use in illegal cross-border remittance, money laundering, and other activities that disrupt financial order.
● Clear Signal: Legal and market analysts interpret the spirit of this meeting as a reinforced reiteration of existing regulatory policies, with a clearer signal aimed at severing the link between stablecoins and illegal financial activities, and guiding market expectations.
IV. Market Impact: Liquidity Freeze and Risk Repricing
Regulatory pressure has quickly transmitted to the microstructure of the market, having an immediate impact on participant behavior and market pricing logic.
● Short-term Liquidity Freeze: OTC market liquidity is highly dependent on intermediaries, whose cautious stance has directly led to poorer market depth, wider bid-ask spreads, and increased difficulty in short-term cash-outs.
● “Risk Premium” Becomes Explicit: The essence of this inversion is the market’s repricing of the compliance risk (account freezing) and liquidity risk inherent in operating through this channel. The negative premium is equivalent to a “risk discount” paid by traders to exchange for fiat currency.
● Revealing the Dual Structure: The price inversion vividly exposes the temporary divergence caused by regulatory intervention between the strictly controlled official foreign exchange market and the OTC market determined by gray supply and demand.
V. Future Outlook: Compliance Watershed and New Market Normal
Looking ahead, stablecoins and related trading markets will seek a new balance under the tug-of-war between compliance constraints and real demand.
● Normalization of Short-term Volatility: As long as the regulatory crackdown on illegal currency exchange remains intense, OTC market liquidity and prices will struggle to return to their previous “stable” state, and frequent volatility will become the new normal.
● Diverging Development Paths: The market will accelerate toward divergence. On one hand, the space for gray cross-border exchange using stablecoins will be greatly compressed; on the other hand, blockchain financial applications serving real needs such as compliant cross-border trade settlement and supply chain finance will explore development under clearer rules.
● Long-term Value Anchor Shift: The core determinant of the long-term value of stablecoins such as USDT will no longer be arbitrage spreads, but rather their network effects, security, and ultimate compliance acceptance as potential financial infrastructure.
The break below 7 and the “inversion” of the USDT/CNY price in early December was a short-term market phenomenon triggered by precise domestic regulatory action against illegal currency exchange, compounded by international expectations of a weakening US dollar.
It acted as a stress test, thoroughly exposing the fragility of gray capital channels operating outside regulatory oversight. In the future, the pulse of related markets will be more closely tied to the tightening or loosening of compliance policies, and any short-term price differences will first be reflected as “the price of risk,” rather than “a window of opportunity.”
