Embattled crypto on the precipice – Evergrande weighs heavily on markets

The crypto market has fallen today as a reaction to a drop on the Hang Seng Hong Kong stock market. Since then, all markets have opened down on the day. The fear is that Evergrande may become a systemic risk to the financial system. When Wall Street opens later today will markets calm down, or will the panic proliferate? 

Evergrande is the spectre that looms large over the global markets. A default on its $300 billion debt repayment is very much on the cards, depending on whether China steps in to shore up the situation. 

The company has already signalled that it will not be able to pay interest on loans that was due today. Meanwhile, an $84 million payment on Evergrande bonds falls due on Thursday. 

The fall-out zone around the faltering giant property developer is huge. Evergrande owes money to around 171 banks and 121 other financial companies.  

According to an article on the BBC’s Business News, an Evergrande default would likely lead to banks being able to lend less. This in itself could result in a “credit crunch” whereby companies would be able to borrow less and therefore not be able to grow – or even not be able to continue operating. 

All this uncertainty paints a fairly grim picture for Bitcoin and crypto, at least in the very short term. When US markets open in a matter of a couple of hours, the situation can either steady itself, or, perhaps become far worse. 

When the US wakes up it can be imagined that all efforts will be made to calm the markets. What can’t be imagined is that this contagion will be allowed to have its head, leading to a widespread domino effect that can crash markets worldwide, and wreak havoc on the relatively tiny asset class that is crypto. 

At time of writing, Bitcoin is trading at around $44,300, having just touched a trendline begun at a local low on 7 Sept. 

 

According to City Index analyst Tony Sycamore, BTC might drop as low as $40,000 before heading higher, and sees it as a “phenomenal” buying opportunity. 

We’ve all been here before with Bitcoin. The number one cryptocurrency recovered from the black swan of black swan events, seen in the March 2020 Covid crash. It can well be argued that the current Evergrande event in no way compares with that one. 

The imminent opening of the US stock markets should certainly throw more clarity on the situation. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice. 

Publication date: 
09/20/2021 - 11:37
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