One primary cause for the extremely bearish crypto market is perhaps the downfall of Evergrande and its possible impact on Chinese economy. Amidst the bullish tweets and articles written by “top crypto analysts”, very few people pay attention to the broader fundamental connections of the crypto market. Evergrande, China’s second largest construction company is in hot waters. With more than $300 billion in debt, with or without government intervention, an inevitable demise is coming to lay upon the Chinese economy.
Evergrande, A Recipe for Disaster
Known as the second largest construction company in China, Evergrande surely does not limit their business ventures to building apartments. Bottled water? Soccer teams? Electric cars? Yep, they have done it all. More importantly, there have been rumors of lending money to Tether which is most concerning. Even worse, Evergrande could very well be holding massive amounts of Bitcoin or other digital assets but that’s just speculation.
Even though their primary source of income has been the Chinese real estate market, their diversely extended activities are far beyond the fathomable limits. Considering the loosely constructed Chinese financial regulations as well as the conspicuous statistics that seldom turn out to be lies, Evergrande could very well be in a hot mess as the liquidity crisis deepens.
Naturally, regarding their connection with the crypto market, how could one believe that they have not made any major ventures into the longest running bullish market. How could we believe Tether saying they don’t hold any short-term debt issued by Evergrande?
Generally speaking, as declared in May, half of Tether’s reserves are backed by commercial papers. Issued by corporations, commercial paper is a short-term debt that are unsecured. And with that disturbing fact in mind, looking at the enormous Tether market cap, the regulatory structure of China and the anonymity of the commercial papers, it would be safe to assume that the papers were issued from either Evergrande or another Chinese giant that is sure to be negatively influenced by the looming market crash.
It was only yesterday when we criticized Tether’s shady policies that would initially bear a detrimental impact on all cryptocurrencies.
The Direct and Indirect Influence
Putting aside the possible connection with Tether or holdings of Bitcoin by Evergrande, in case of a financial crisis in China, the crypto market could take a big hit.
As we have seen before, Large markets such as the US or the Chinese stock markets bear a huge influence on the crypto market. In case of a Lehman Brothers scenario for China, Cryptocurrencies will definitely suffer.
On the other hand, desperate times in China can lead to extreme liquidations of cryptocurrencies or direct market intervention by the government. A truly alarming possibility indeed.
When it comes down to Tether, we could safely assume that a great deal of the commercial papers is issued from Chinese corporations. Subsequently, Tether is at a vulnerable spot. In a nightmarish scenario, When Tether price sees a decrease, all hell could break loose.
The Bottom Line
There will be two notes releasing this week from Evergrande hopefully shedding light on the situation. At this point, the severity of the situation and the upcoming approaches to solve this issue are still unclear. However, with the media attention and the cat that is out of the bag, the situation is developing at a fast pace. Once again, let us all wait and see the outcome of what is beyond our control.
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