China’s Social Credit System is reshaping the crypto market

Restrictions tied to China's social credit system may have pushed more citizens to turn to cryptocurrencies. This is the conclusion reached by analysts at the US-based company Chainalysis, who recorded significant growth in stablecoin transactions and peer-to-peer (P2P) transfers in China.

According to experts, direct cryptocurrency transfers between users account for nearly 60% of China's crypto market in 2026.

Another indication of the growing popularity of such transactions is the increasing number of unique wallets sending P2P transfers in stablecoins. Between the first quarter of 2024 and the second quarter of 2026, their number increased 43-fold.

The shift toward cryptocurrency payments may be linked to the expansion of China's social credit system and users' desire to avoid government financial oversight.

China's crypto market exceeds $176 billion

Despite existing restrictions on cryptocurrency activities in China, digital assets continue to be widely used across the country.

In September 2021, the People's Bank of China declared cryptocurrency-to-fiat exchanges, digital asset trading, and related services illegal financial activities. The ban also applies to overseas cryptocurrency exchanges providing online services to residents of mainland China.

Chinese authorities have repeatedly reaffirmed their position. In late 2025, the People's Bank of China once again emphasized that cryptocurrencies, including stablecoins, do not have legal tender status and cannot be used as money in commercial transactions.

Nevertheless, Chainalysis estimates that China's crypto economy will reach at least $176 billion in 2026. Analysts also acknowledge that the actual figure could be substantially higher, as a significant share of transactions takes place outside the regulated financial infrastructure.

A defining feature of China's crypto market is the high proportion of direct transfers between users without centralized intermediaries. Such transactions, known as peer-to-peer (P2P) transfers, account for 59.1% of China's entire crypto economy. Their share has increased 3.5-fold compared with the previous period.

By comparison, cryptocurrency activity in most other major markets is primarily concentrated around centralized exchanges and regulated service providers.

What is the Social Credit System?

The Social Credit System (SCS) is a collection of mechanisms designed to assess the trustworthiness of individuals and organizations.

In 2014, Chinese authorities officially announced plans to introduce the system in selected provinces. Initially, the project's main objectives included improving business transparency, combating corruption, and strengthening trust among participants in economic relationships. Over time, assessment mechanisms expanded into other areas of public life.

However, China does not have a single nationwide scoring system that assigns every citizen a universal rating. Instead, various government, regional, and commercial systems operate under different criteria and implementation methods.

Some models use numerical scores ranging from 0 to 1,000 points, while others apply letter grades from A to D. Assessments may draw on information from government agencies, tax authorities, and law enforcement bodies, while certain systems also incorporate data about citizens' online activities.

An important role is played by so-called blacklists and redlists:

• Blacklists include individuals and organizations found to have violated specific requirements. Grounds for inclusion may include unpaid taxes, failure to meet debt obligations, or other legal violations. Depending on the particular system, consequences may include restrictions on obtaining loans, purchasing airline or high-speed train tickets, and accessing certain services.
• Redlists, by contrast, are intended to reward trustworthy individuals and organizations. In certain programs, inclusion may provide access to preferential lending terms, priority services, or other benefits.

As a result, the social credit system can affect not only an individual's reputation but also their ability to access certain financial and public services.

How the Social Credit System affects cryptocurrency payments

According to Chainalysis, a noticeable acceleration in the use of stablecoins for domestic payments began in March 2025. Analysts associate this period with the expansion of social credit mechanisms into the financial sector and online activities.

After March 2025, monthly stablecoin transaction volumes entered a period of sustained growth that continued for 13 consecutive full months.

During this period, the volume of these transactions increased from approximately $240 million in March 2025 to nearly $5 billion in March 2026, representing almost a 21-fold increase.

Experts believe this trend points to bigger changes in consumer payment habits rather than a short-lived surge in interest.

Chainalysis identifies two possible explanations for this trend:

1. Seeking alternatives to traditional financial services. Individuals facing restrictions that prevent them from using conventional banking services may turn to cryptocurrencies. These transactions allow funds to be transferred directly and offer greater resistance to censorship, although they do not guarantee complete anonymity.
2. Avoiding financial monitoring. Users concerned about being placed on restrictive lists may prefer cryptocurrency transfers over official payment channels. For example, a seller could post a product listing online and then share a cryptocurrency wallet address with the buyer via Telegram to receive payment.

However, analysts regard the influence of the social credit system as a possible factor behind the growth in cryptocurrency transactions. The fact that the system's expansion coincided with rising transfer volumes does not, in itself, establish a direct causal relationship.

Stablecoins as a tool for everyday payments

Chainalysis recorded the most significant growth in the segment of relatively small cryptocurrency payments.

Since March 2025, the volume of stablecoin transfers worth up to $100 has increased by 996%. Transfers ranging from $100 to $1,000 grew by 1,057%, while those between $1,000 and $10,000 increased by 1,321%.

This trend suggests that digital assets are increasingly being used for everyday and commercial payments, rather than exclusively for large transfers or investment purposes.

Further evidence of strong payment activity comes from the velocity of stablecoin circulation in personal cryptocurrency wallets.

According to Chainalysis, this indicator reached 33.2 turnovers per year in China, compared with a global average of 9.3. This means Chinese users move their stablecoins more than three times as frequently as the global average.

China's figure also significantly exceeds those of other major regional markets. Stablecoin velocity stands at 9.9 turnovers per year in Japan, 6.1 in Hong Kong, 5.1 in South Korea, and just 3.5 in Taiwan. China is therefore the clear regional leader in terms of stablecoin circulation intensity.

According to analysts, such high circulation velocity indicates that stablecoins are primarily being used as working capital rather than as a long-term store of value.

In other words, digital assets are increasingly functioning as a means of payment: users receive them, transfer them to other market participants, and put them back into circulation for further transactions.

China ranks among Asia's five largest crypto markets

The Chainalysis study covers not only China but also other major cryptocurrency markets across Asia.

South Korea leads in terms of crypto economy size, with a total of $449.1 billion. Japan ranks second, with cryptocurrency transaction volumes estimated at $228.3 billion. Hong Kong takes third place at $192.2 billion.

China ranks fourth, with a crypto economy valued at $176.3 billion, while Taiwan completes the top five at $140.4 billion.

Despite having some of the strictest restrictions among Asia's major cryptocurrency markets, China remains the region's fourth-largest market by cryptocurrency transaction volume. Unlike South Korea, Japan, Hong Kong, and Taiwan, where cryptocurrency platforms are permitted to operate, mainland China prohibits cryptocurrency payments and exchange services.

The comparison between mainland China and Hong Kong is particularly revealing. Although Hong Kong is part of the People's Republic of China, it maintains its own financial regulatory framework. These regulatory differences are reflected in the structure of their respective markets. While direct transfers between users dominate in mainland China, Hong Kong is emerging as a major hub for institutional cryptocurrency transactions.

The findings of the Chainalysis study suggest that restrictive measures do not necessarily eliminate demand for digital assets. Instead of using regulated trading platforms, users may shift toward direct P2P transfers and personal cryptocurrency wallets. This makes such transactions more difficult to monitor and contributes to the growth of the informal crypto economy.