Evergrande Crisis — The Future of Crypto?
Nerves are on edge as the world watches Evergrande, China’s second-largest developer, scramble to raise funds to pay its lenders and suppliers. With more than $300 billion in liabilities (equal to 2% of China’s GDP), Evergrande is focused on appeasing its investors who are on edge at the thought of what could happen if the developer fails to pay up. If this were to happen, the aftermath could affect more than just China’s economy.
Evergrande’s crisis came to headlines in 2020 when the Chinese government implemented measures to address the issue of rising debt accumulated by property developers. As a result, Evergrande were unable to finish building properties and sell them to settle their debts. Leadership in Evergrande are confident that they will pay off all the money they owe, but judgment is still out until this actually happens.
While this situation is unraveling in the property sector in China, traders all over the world need to pay attention to these events as a failure to settle debts could negatively impact the markets — including crypto.
One of the reasons the world is on edge is because of the market’s exposure to banks and other financial entities. Major US banks like Goldman Sachs and JPMorgan were among the Dow’s worst performers after Evergrande alerted banks that it would not be able to make September’s debt payments. Digital currencies felt the aftermath of Evergrande’s declaration as well.
The crypto market experienced a sudden loss of $250 billion in value. Most leading coins, including Bitcoin and Ether, experienced a notable dip — marking their lowest levels since early August.
This event was a clear marker to traders that Evergrande’s problems could become everyone’s problem if they are unsuccessful in settling their debts. Observers are already comparing this situation to the 2008 crisis when the markets collapsed after the Lehman Brothers folded. While this present crisis hasn’t reached such lengths, investors are sounding the alarm bells.
Crypto is not completely insulated from traditional markets, both locally and globally. When the market experiences stress, Bitcoin serves more like a risk as opposed to a safe haven. Take last year’s crash, for example, when the pandemic hit. Both traditional and crypto markets experienced a significant dip. Uncertainty surrounding what will happen to Evergrande, and whether the Chinese government will intervene, makes it hard for traders to make decisions on their investments.
The world is in an uncomfortable waiting game until answers come from China. Traders, investors, and shareholders alike can only hope that a positive solution comes so that a larger crisis is averted. However, given the historical occurrences and bounceback nature of the crypto ecosystem, the crypto market will certainly find a way to get through this.