Bitcoin & Crypto Drop Alongside Stocks On China's Evergrande Spillover Risks
As the problems related to the Chinese property development giant China Evergrande continue to mount, investors in everything from stocks to bitcoin (BTC) and the broader crypto market are worrying about the potential spillover effects a Chinese “Lehman moment” could have.
As China’s second-largest property developer, China Evergrande holds more than USD 300bn of debt, placing the company as “the world’s most indebted property developer,” per CNBC.
The company has repeatedly seen its ratings cut by international ratings agencies, and has itself warned on multiple occasions that it could default on its debt.
And although not at first sight related to bitcoin, some industry insiders are increasingly concerned about the impact such a large Chinese default could have, and possibly already has, on the cryptocurrency markets.
Among those who have voiced concerns is Alex Mashinsky, Founder and CEO of crypto lending and borrowing firm Celsius Network, who said that “a cascade of defaults in the global financial system” could drag bitcoin down with it.
“BTC not being able to break [USD] 50k may have more to do with China than Regulation FUD,” the CEO added.
Meanwhile, as reported by the South China Morning Post on Monday, cracks have also begun to appear elsewhere in the Chinese property sector. Among the property developers now being watched closely are Guangzhou R&F and Fantasia Holdings, both of which have seen their credit ratings cut to “negative” by ratings agencies Fitch and S&P Global Ratings in recent days.
“The worst part is that not only China Evergrande is collapsing, but also other Chinese home builders are drowning in the tsunami caused by it,” Zhou Chuanyi, an analyst at credit research firm Lucror Analytics in Singapore was quoted by the news outlet as saying.
The problems have so far led to a sharp stock market selloff both on Hong Kong’s Hang Seng stock exchange, as well as on US stock markets, with Hang Seng trading down 3.3% for the day and the US S&P 500 set to open down 0.9% later today.
Meanwhile, the traditional safe haven, gold, traded up slightly, gaining 0.17% for the day as of 09:30 UTC.
In the crypto markets, bitcoin was down by 6% over the past 24 hours to trade at USD 45,211, after having fallen from more than USD 48,800 on Saturday.
"After closing above USD 47,000 on Saturday, BTC broke down past the 50-day moving average yesterday <..>. Some have attributed the sudden dip to the currently ongoing Evergrande situation in China which has already caused turmoil in traditional markets. Analysts have suggested a choppy week is ahead, with a potential pullback to as low as USD 41,000, although a key support remains at USD 44,000," Jonas Luethy, Sales Trader at the UK-based digital asset broker GlobalBlock, said in an emailed comment.
Similarly, Ethereum’s native ETH token was down by 7.7% for the past 24 hours to trade at USD 3,172.
Despite the selling seen in the crypto markets today, liquidations were still at fairly low levels across both bitcoin and other cryptoassets as of press time.
Over the past 24 hours, the volatility seen in BTC caused USD 303m to be liquidated, with the overwhelming majority of that being long positions that were forcibly closed on Binance, per Bybt.com data.
For ETH, the situation was similar, with just over USD 200m liquidated over the same time period.
And while bitcoin – still seen by many as a ‘risk-on’ asset – has so far suffered, crypto industry insiders and analysts point to strong on-chain fundamentals as a reason to be optimistic.
As described in Chainalysis’ latest Market Intel Report, on-chain signals suggest that most bitcoin holders have remained bullish during the month of September, given that flows of coins into exchanges “decreased rapidly” in the days following the September 7 selloff.
“In fact, whales, on both bitcoin and ethereum, appear to be settling in for a long period of holding, with many of the whales that entered in Q1 of 2021 continuing to hold,” wrote Philip Gradwell, Chief Economist at Chainalysis.
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(Updated at 13:26 UTC with reactions.)