When it comes to the possibility of Chinese real estate behemoth Evergrande defaulting on its $305 billion in debt, pundits are speculating on how the firm’s insolvency would affect the legacy and cryptocurrency markets, respectively.
When it comes to Bitcoin mining, Marty Bent, the co-founder of Bitcoin mining firm Great American Mining, is delighted to be holding on to the cryptocurrency while uncertainty looms over the legacy financial system.
When it comes to the possibility of Chinese real estate behemoth Evergrande defaulting on its $305 billion in debt, analysts are speculating on how the firm’s insolvency would affect the legacy and cryptocurrency markets, respectively.
Due to the rumor that the real estate investment giant may default, there has been a decline in the cryptocurrency and stock markets, leaving many analysts divided on whether traders should buy the dip or try to grab profits in anticipation of further downward momentum.
The price of Bitcoin (BTC) has fallen by approximately 13 percent since the slump began on September 18, while the S&P 500 has fallen by 1.7 percent and the Hang Seng has fallen by approximately 2.8 percent in the same time period.
Some believe that Evergande’s impending default could be another Lehman Brothers moment, referring to the big investment bank’s 2008 declaration of bankruptcy on $600 billion in debt, which marked the beginning of the Global Financial Crisis.
Although Ray Dalio, co-chairman and co-chief investment officer of Bridgewater Associates, downplayed the implications of an Evergrande default, he did say that the debt is “manageable” in a speech at the Greenwich Economic Forum on September 22.
In his statement, Dalio acknowledges that while investors would be hurt, he believes that Evergrande’s debt will not cause structural damage because the Chinese government may intervene to reorganize the company and reach agreements with the company. He stated, “I’m not going to lie, I’m not going to lie.”
“[The] Lehman moment produced pervasive structural damage through the system that wasn’t rectified until the Treasury came across in terms of its borrowing and then the Fed came across with quantitative easing, but this is not that kind of a shake-up.”
Ming Tan, a director at the credit rating firm Standard & Poor’s (S&P), thinks that the Chinese government will interfere to reorganize Evergrande in a similar fashion to Ming.
According to Tan, who spoke to the Financial Times on September 20, the “profitable parts of [Evergrande’s] business will be bought up by rivals,” with the company’s debt obligations likely to be covered by either a consortium of commercial Chinese banks or the local central bank directly.
In a statement the same day, Jim Cramer, the host of CNBC’s Mad Money show, stated that Evergrande’s debt problems will most likely have an influence on the cryptocurrency market because roughly half of the reserves backing the most popular stablecoin Tether (USDT) are held in commercial paper.
According to Cramer, investors should exercise cautious as Evergrande waits for a decision on a possible government bailout.
“I know the crypto-lovers never want to hear me say sell, but if you’ve got a big gain as I did, well, I’m begging you: Don’t let it become a loss. Sell some, stay long the rest, then let’s wait and see if China changes its attitude toward an Evergrande bailout.”
While Tether has denied holding any Evergrande commercial debt, analysts have warned that the ramifications of an Evergrande reorganization might have a large influence on the commercial paper markets as a whole.
“Tons of Chinese businesses stand to get crushed by this fiasco, and they have Evergrande exposure, and that could spell real trouble,” said Cramer.
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Currently both Tether and Circle hold commercial paper, and while I think it unlikely that either would have large swaths of Evergrande bonds, the whole market will reel a bit.
— Adam Cochran (@adamscochran) September 14, 2021On September 20, podcaster Marty Bent, who is also the co-founder of Great American Mining, sent out a warning in his newsletter.
Bent asserted that a default by Evergrande will reveal how “exposed the Western world is to China’s economy” as a result of investments in significant real estate players, their debt instruments, and loans issued by the Chinese Community Party, among other sources of information (CCP).
“Evergrande is on the verge of bankruptcy, and it is bringing down other major real estate developers in China with it.” According to him, the world is facing another Lehman moment.
Aside from that, Bent questioned the notion that Evergrande will be bailed out by the Chinese government, pointing to the Chinese Communist Party’s recent efforts to reign in capitalism and strengthen rules on the real estate industry.
According to the CCP, they do not intend to provide financial assistance to real estate developers who are currently on the verge of going bankrupt. As the situation worsens, it will be fascinating to watch if they maintain their posture,” he added.
As part of his remarks, the podcaster expressed his uncertainty about whether or not Evergrande’s actions will have an impact on Bitcoin in the short to medium term, but expressed his gratitude for being able to use Bitcoin as a hedge against the fiat-backed global financial system.
Okay, so who’s interested in purchasing the dip?
Ok who is buying the dip?✋
— Dan Held (@danheld) September 21, 2021