The cryptocurrency market took a big hit on Monday morning as various assets fell drastically; with Bitcoin having fallen below $44,000 a coin and Ethereum down to around $3,000.
The main culprit behind this drop is the Chinese corporation Evergrande, a property developer that is about to default on its debts. What makes Evergrande so important is that it’s such a large corporation, a collapse could affect the global economy.
This fear caused a ton of investors to start selling their more volatile assets, like cryptocurrency, to weather the coming storm.
So What Happened?
Evergrande is a massive corporation that has its hand in many different industries, but the main business is in real estate. It’s China’s second-biggest property developer with more than 1,300 projects in over 280 Chinese cities. The company boasts that it creates more than 3.8 million jobs every year.
In its climb to the top, Evergrande amassed huge amounts of debt, around 572 billion yuan or $89 billion that it owes to banks and other bondholders. The time has come for the company to pay back its debt, but it looks like it can’t.
This brings the situation to cryptocurrency as investors are liquidating their assets. According to the crypto trading platform Bybit, around $1.27 billion worth of cryptocurrencies has been liquidated to protect the more stable investments. As time has gone on, Bitcoin now closely follows the market overall instead of being its own thing.
Bitcoin has crashed to prices not seen since August.
— Pomp 🌪 (@APompliano) September 20, 2021
That means when the market goes down, so does Bitcoin, but that doesn’t things are going to let up. Jonas Luethy, a sales trader asset broker GlobalBlock, says “…a choppy week is ahead, with a potential pullback to as a low as $41,000.”
Tether at Risk
Volatile cryptos aren’t the only ones at risk as some fear stable coins might get hit as well. Noelle Acheson, who is the Head of Market Insights at Genesis Trading, says that the stablecoin Tether is getting dragged down as well. According to Acheson, Tether makes up more than half of the stablecoin and is actively traded in Asian markets.
Stuart Hoegner admits that Tether has Chinese Commercial Paper.
He references the rating, however, commercial paper tied to Evergrande, was rated AA, until the collapse.
So ratings aren't exactly a ringing endorsement, just like in 2008 with the Global Financial Crisis. pic.twitter.com/YjWtO3YxZx
— Bitfinex'ed 🔥 (@Bitfinexed) September 19, 2021
She goes on to say that a large part of Tether’s reserves is in commercial paper. Tether representatives have states that the company doesn’t hold any commercial paper in Evergrande, but it could own notes in companies owned by Evergrande.
If the worse scenario happens and Evergrande collapses, it will bring all of its smaller companies down with it, and subsequently, Tether as well.
Acheson goes on to say that Evergrande and Tether collapsing is an unlikely scenario and points out just how far the cryptocurrency market has grown in a few years. That now the crypto market is large enough and significant enough to be taken seriously by governments around the world.
As for Evergrande, economists and analysts believe that the Chinese government will step and help out in some regard. If anything, the CCP will most likely restructure it and salvage what it can.
But that debt isn’t going anywhere. Someone, Evergrande or the CCP, will have to pay off those billions or risk kicking the can down the road.