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I think we all noticed the Monday crash. Not only the crypto markets seemed to fall like a meteorite entering through the atmosphere but also the stock market. In this article we will look at the possible reason why this happened and try to think about whether this will influence the crypto market. As always, this article is not financial advice but only for entertainment purposes.
Evergrande Situation explained
The whole reason why the markets crashed is assumed to be closely connected to the Chinese company Evergrande. (And no, that not the ship that was stuck earlier in the year; that was the Evergreen) With this being said, I will try to summarize the whole situation as compact as possible. Evergrande is a Chinese real estate/ property company. Not only that but it is also invested in further sectors like a Chinese soccer team. But the main area they are operating is the property market. This company is so big and successful that a lot of internationals banks and companies are invested in Evergrande. This makes Evergrande one of the most influential companies, not only in China but around the world. It is one of the biggest employer in China and a big part of the Chinese economy.
So far so good. But what happened is the question now? Why is Evergrande in such big trouble. One of the biggest reasons is the pandemic. Due to Covid there is a rising shortage of building materials which is essential for a property company. Without materials there is no finished projects. Without finished projects there is no revenue. Evergrande has a lot of unfinished projects. This situation was not planned and brings the company in big trouble. Now comes the second big problem for them. Usually, such a big company would get at least some help from its government since it is such a big employer and helps the economy in this country. Unfortunately for Evergrande the Chinese government has a different opinion. Because Evergrande is making business with real estate and therefore with housing this puts this company on an imaginary “blacklist” of a communist party. According to the government “housing must be for the people and not a business”. This leads to speculation whether the China will bail out one of their biggest companies.
So why does this affect the markets so much? As mentioned earlier Evergrande has a lot of investors where they borrowed money from. With this situation they can not pay back this debt. This leads to a lot of losses for the international investors around the globe. Without going into many details, this would lead to a crash in the stock markets because all of the investors would lose a lot of capital and therefore their stock crashes as well.
Meaning for crypto
Unfortunately for the crypto market, it is not completely isolated from the global economy. Like during the start of COIVD people don’t see Bitcoin as a safe investment and therefore dumb it as soon as there is a crisis in the making. The reality is that Bitcoin and other crypto currencies have a pretty strong correlation with the other equity markets. Another point of view to this is that a lot of big institutional holders of BTC might sell off their BTC to cover the losses that they might get from this whole Evergrande scenario. Another big risk might be that Tether might be holding a big portion of the debt of Evergrande. If this is the case and Evergrande defaults, you all know that a big storm is coming towards us.
Conclusion
The purpose of this article was not to cause mass panic. I think it is always important to know what is happening around the world and what risks there are for us as crypto holders. I tried to cover this topic as compact and short as possible. Therefore, I might have missed some deeper information and explanation. In my sources you can find more detailed explanations for this topic.
In my opinion there is only one way to behave now. This is, invest as continuous as possible whether the prices are going up or down. No matter if it is in crypto or the stock market. If you believe in the future of something and do not need the money right now you can park it in these markets and forget about it. Everything else is called gambling and true investors like us don’t do that :)
Published by ga38jem on PUBLISH0X on the 23th of September 2021
