The crypto market was rocked this morning Asia time as news that indebted Chinese property giant Evergrande may default on a US$148 million bond payment sent prices dropping around 5% across the board. Prices stabilized throughout the day, however, after the firm was able to make the payment at the last moment as the grace period deadline expired yesterday. With the company around US$300 billion in debt, there are concerns over the effect the company defaulting would have on global markets, both crypto and otherwise.
The price drop-off comes after days of strong price action among many leading tokens. The two largest cryptocurrencies by market cap, Bitcoin and Ethereum, both reached new all-time highs within hours of each other overnight before each losing more than 5% coming into business hours this morning, according to data from CoinGecko. Both following very similar price movements, Bitcoin reached US$69,044 just after midnight with Ethereum reaching a new level of US$4,878 shortly after.
This is not the first time concerns over Evergrande’s future have caused global markets to falter. In September a similar scare saw crypto markets losing around 9% as the company debt woes made headlines around the world, with the threat of its collapse, eliciting comparisons to the Lehman Brothers downfall that triggered the global financial crisis in 2008. The fallout from the pending default was not as acute this time around, but one market analyst told Forkast.News the company’s troubles are far from over.
“Every time [Evergrande] makes a payment, the clock starts ticking down for the next one, and I think the market’s very much aware that it’s always going to try and use that grace period [on its loans],” said Andrew Sullivan, founder and writer for Asianmarketsense.com. “It doesn’t have enough money to pay for everything on time, so it’s having to play swings and roundabouts, taking money from the left pocket to the right pocket … in order to pay different suppliers, different bondholders.”
With the exception of stablecoins, no tokens in the top 10 by market cap were spared the downturn, though some were more affected than others. Binance Coin, in third position, which had been making a run up on its all-time high it set back in May, had been trading at its highest point since that time before dropping 10% this morning. It has since recovered and was trading at US$630 at press time, according to CoinGecko.
Fifth-place Solana set its own all-time high of US$259 over the weekend in the leadup to the network’s first major global conference, Breakpoint, which was held in Lisbon earlier this week. Among the major developments announced at the conference was a US$100 million partnership with the venture firm of Alexis Ohanian, co-founder of social media site Reddit, to invest in decentralized social media platforms to be built on the network. Solana saw a 7% decline in the two hours before trading this morning, but has recovered swiftly and was trading back near its mid-week high at US$246 as of press time, according to CoinGecko.
After sitting in third position for much of the past few months in the leadup to its long-awaited Alonzo upgrade, which was to bring smart contract capabilities to the network, Cardano has been in slow decline since early September. An impressive price run earlier in the week seemed to suggest a change in fortunes for the network, gaining 20% in a matter of days to reach a one-month high of US$2.36. Its price retreated from this point quickly, however, and with the 9% drop off this morning, most of the gains of the past week were erased. It was trading at US$2.15 at press time, according to CoinGecko.
While the company — like the global economy — is not out of the woods yet, today’s payment has bought Evergrande some time, with the next major payment not being due until early 2022. Nonetheless, the company is still rife with liquidity issues and has had to resort to extreme measures to get money together. Company employees have been told they must give the firm short-term loans if they wish to receive their bonuses, and company founder and chairman Xu Jiayin put a luxury house in Hong Kong he owns as loan collateral at the request of company creditors.
Speculation abounds as to whether the Chinese government would allow Evergrande to fail, or would step in to save the company, though Sullivan does not believe that it would, instead that it may attempt to apply subtle pressure to other developers to help the flailing behemoth out. Evergrande’s competitors may be disinterested in stepping in as many of the company’s projects are already pre-sold, and so would yield little capital in return. While this has been done in the past, it was while the markets were much healthier, and Sullivan speculates some competitors may be holding off on buying any assets until the prices come down even further.
The real estate market has had enormous economic and cultural value to the world’s most populous nation, and if it were to collapse it would be disastrous for the country and its people. “People in China view property to a large extent as their bank, this is their pension,” Sullivan said, explaining as the housing market was slowing down, the Chinese government was trying to shift the economy towards the production of high-end technological goods, such as semiconductors.
China has taken a progressively hard-line approach to cryptocurrency this year starting with a crackdown on mining throughout the country before putting a blanket ban of all cryptocurrency-related transactions in September due to the government’s belief crypto is disrupting the economic and financial order.
Sullivan said the strong market action recently could have raised tensions with would-be investors within the country, but the government has taken advantage of the current moment to smooth over the cryptocurrency issue — among others.
“People are naturally going to be resentful of the fact that they’ve been banned from that market,” Sullivan said. “How much they can do about it, how much that’s going to sway the government [it’s] difficult to say. The thing about Covid is that it’s allowing [the government] to be very, very draconian, to close China down, to make sure people aren’t aware of what’s going on outside so much as they would have before. So that suits [Chinese President] Xi [Jinping].”