Evergrande debt crisis in China. What could it mean for bitcoin?

The financial world is closely watching Evergrande and what is happening in China. It is undoubtedly one of the most important events.

Evergrande — Chinese real estate behemoth is waning

Evergrande has managed to become a leader among real estate companies in China. Reportedly, she has completed over 1,300 projects in over 280 Chinese cities. He also owns one of the largest soccer teams in the country — Guangzhou FC.

It achieved this by borrowing over $ 300 billion from more than 171 domestic banks and 121 other financial firms. Last year, however, Beijing introduced new regulations that control the amount of debt of large developers. This prompted Evergrande to put their properties up for sale at substantial discounts.

The company did this to ensure it had enough money to keep it running. Now, however, he is struggling to pay interest on his debt, and it is not known whether he will receive Beijing support.

Why does this matter both inside and outside China?

China is the world’s second-largest economy and Evergrande is one of the country’s largest companies. The potential collapse of Evergrande could therefore have a huge impact on the global economy due to complex macro-and microeconomic problems.

There are at least several reasons why these problems are serious and require proper consideration. Lots of people bought properties from Evergrande before the company started building them. If something goes wrong, they can lose the money they have deposited.

Additionally, the company has an international supply chain and does business with many companies around the world — including construction, design, transportation, etc. If Evergrande defaults, they will all be exposed to losses.

Third, it is about the impact on the country’s financial situation. Mattie Bekink from the Economist Intelligence Unit (EIU) spoke on this matter;

“A financial collapse would have far-reaching consequences. Evergrande reportedly owes money to some 171 national banks and 121 other financial institutions.”

One of the main concerns is the so-called credit crisis. If a company defaults, its lenders (including financial institutions and banks) may have to make smaller loans and raise interest rates. That would be very bad news for other companies. Some of them base their development on debt, and in some special cases, they may not even be able to function without debt.

The effects are already visible

Evergrande shares have lost more than 80% in the last 6 months, and today alone they are down by more than 10%. It also caused a 3.3% drop in the Hang Seng index, an index that tracks major Chinese companies. This is the biggest loss since the end of July. So it is clear that the concerns about real estate extend beyond Evergrande itself.

Moreover, in the morning there were declines in the global markets. The S & P500 futures fell 1%, as did the DOW and NASDAQ futures.

What will happen to bitcoin?

Bitcoin is a risky asset. In fact, its fickle nature makes it one of the most insecure investment instruments. And while investors with high-risk tolerance buy BTC to maximize their profits, it is unlikely that they will hold coins during a financial crisis.

Moreover, in times of turmoil in broader financial markets, bitcoin tended to be quite shaky — which is another argument to support the above thesis. Consequently, it is entirely possible that we will see further market hesitation until the concerns from China are allayed.

However, it is also worth noting that this does not only apply to bitcoin, but also to other risky assets. They are usually liquefied first when the economy is shaky and the dollar rises.

Of course, bitcoin should be an uncorrelated asset as it is fundamentally different from traditional assets. However, this is not the case, mainly due to large institutions becoming an important part of the market.