Investors woke up this morning in Asia to find the crypto market down across the board, with only stablecoins holding steady, according to CoinMarketCap.com. Though they have begun to recover slightly, all other tokens in the top 10 were down at least 9% in the past 24 hours at press time, including Bitcoin, Ethereum and Cardano — with the latter losing so much ground as to slip from its number three position, which it had enjoyed for the past several months.
ADA, the native token of the Cardano network, has lost over 30% since its all-time high of US$3.09 earlier in the month in the lead-up to the highly anticipated Alonzo upgrade, and was trading at US$2.06 at press time.
While the sight of so much red may have some investors worried, industry watchers suggest there are significant international developments whose influence is seeping into the crypto market at the moment, so it might be best to sit tight for a while.
“We’re at an interesting juncture in traditional markets and crypto markets,” said Justin d’Anethan, head of exchange sales at EQONEX. “There are positives and negatives but for now, investors are giving in to bearishness across the board.”
China’s Lehman Brothers moment?
The prospect of looming collapse of one of the world’s biggest companies, Chinese property developer Evergrande, has sent global markets reeling in the past few days, which is now being felt in the crypto markets as well. The company has grown enormously in its 30-year history to become a Fortune 500 firm, but as Andrew Sullivan, founder and writer for Asianmarketsense.com told Forkast.News, it has failed to consolidate its debt along the way.
Now, due to changing market and government conditions that affected the property market, those debts have caught up with them. The company is reportedly 2 trillion yuan (US$309.2 billion) in debt according to their books, with a further 1 billion yuan of off-balance debt. Its share price is down 80% from July — its lowest point since 2014.
Evergrande has two upcoming repayments that has the market nervous; a US$83.5 million interest payment on a March 2022 bond on Thursday, followed by another US$47.5 million payment on Sept. 29 for March 2024.
The prospect of its collapse conjures obvious comparisons to the Lehman Brothers collapse of 2008, which triggered the global financial crisis, but some China watchers say the effect won’t be quite so severe. Sullivan said that while Beijing is searching for a market-based solution, he doesn’t believe the leaders would let Evergrande collapse completely.
“I don’t think they would allow it to go completely bust,” Sullivan said, “because of the knock-on effect to everything else, and especially the fact that would undermine it as far as the offshore bond market goes. And that’s something it really does need that money coming in [for].”
Property has been a significant driver of growth in China in recent years, but as the government seeks to shift to a more isolationist economy, which includes increasing manufacturing — especially of expensive semiconductors — Sullivan said the government cannot afford to have so much illiquid wealth stored in real estate. This has led to a shift in how the property market is being viewed in the country, and may also impact the government’s response to the crisis.
“Before the social contract was ‘let us rule and we’ll give you quick growth and make everybody rich,’” Sullivan said. “It’s now going to be much more that that growth is not going to be so assured, ideology is going to be a lot more important, and there should be a general prosperity rather than … a few getting very rich.”
Sullivan also pointed out this crisis highlights some of the benefits of crypto, especially when compared to property: “If you’re using [crypto] as a store of value] you can liquidate them very quickly.”
Looking for safe haven
The potential for Evergrande’s collapse has shaken markets around the globe, and crypto is no different.
“The fear is undeniably seeping in crypto markets,” D’Anethan said. “From where I’m standing, there’s no real cause for the retracement we’re seeing besides the fact that large funds — and maybe smaller investors as well — would rather cycle into cash or, at least, less risky assets.”
And when it comes to crypto, Bitcoin is the least risky asset there is. Bitcoin fell 11% in the 24 hours before the dip from its price yesterday, though has since recovered and was trading at US$42,571 at press time. But despite this dip in price, Bitcoin’s dominance has been steadily increasing since late last week, a sign investors could be seeking to return to the relative safety of the world’s number one blockchain.
Looking at the close of the U.S. session coming into Asia time this morning, stocks were down across the board, with the Nasdaq down more than 3% and the Dow and S&P 500 pushing that mark as well. Long viewed as a hedge against increased risk in the market, gold and bonds gained over this time, however, in what D’Anetha calls a “classical risk-off move.” After hitting a one-month low of US$1,747.95/oz, gold has been steadily increasing over the past 24 hours gaining close to 1%.
Despite this significant market downturn, Ben Caselin, head of research at crypto exchange AAX, said he expects Bitcoin’s recent period of volatility to be over, projecting new all-time highs before the year’s end. “This is likely among the last highly volatile weeks before Bitcoin definitively springs back into bull mode,” he said. “The last three months of the year at this stage in the cycle can take Bitcoin beyond 100k. Long-term traders are treating this week as a buying opportunity to increase their positions.”
The only tokens in the top 20 which remained unaffected were the three leading stablecoins, Tether’s USDT — which overtook Cardano’s in third place in the crash — Circle’s USDC, and Binance’s BUSD. Stablecoins are tokens whose value is pegged to a particular denomination and are backed by underwriting assets.
Amid increasing regulatory concerns surrounding stablecoins, Tether has come out to say it does not hold any commercial paper issued by Evergrande. U.S. Securities and Exchange Commission chairman Gary Gensler has said recently that many cryptocurrencies — including stablecoins — are securities as the SEC prepares to recommend increased regulation for the industry. The company only recently revealed a total listing of all of its reserves, to assuage critics and to abide by legal rulings. Of the company’s US$62 billion worth of consolidated assets, US$30.8 billion was commercial paper and certificates of deposits.
What’s the alternative?
Altcoins, too, have not been spared the price pullback. Smart contract-capable blockchains like Polkadot, Cosmos, Avalanche and Algorand had seen significant growth in the past few weeks as investors sought to recapture the gains of runaway token Solana, but now this, too, has come to an end. One of a series of these altcoins dubbed “Ethereum killers,” Solana broke into the top 10 and reached number 6 spot within a month as investors were impressed by the blockchain’s debut non-fungible token launch and transaction speeds. Cosmos was the last holdout of this group, gaining 35% over the weekend to hit an all-time high of US$44.54 yesterday morning.
That run was cut short shortly afterward, however, and its native token ATOM lost close to 30% at the bottom of its dip, before recovering slightly, trading at US$34 at press time. All altcoins in the top 20 were down this morning though, with Polkadot’s DOT being one of the most heavily impacted, crashing 16% before the slight rebound, and was trading at $28.33 at press time — its lowest price in over a month
While increased interest in altcoins like this are pushing for a further decoupling from Bitcoin, this recent pullback shows when the market leader moves, the altcoins follow, Caselin said. He does expect the recent price action to continue for a token of this class, however: “Rather than meme coins,” he said. “It is more likely to see fierce competition between smart contract platforms such as Ethereum, Cardano and Solana, but also Terra and Avalanche.”