Friday, Aug 12, 2022

The Evergrande Debt Crisis Impact On Bitcoin And Beyond

The Evergrande Debt Crisis Impact On Bitcoin And Beyond

What does the debt crisis of Evergrande – one of China’s largest companies have to do with Bitcoin?

The financial world is closely following the possible collapse of Evergrande Real Estate Group, and what’s going on in China.

The global markets plunged as Evergrande stock price lost another 10%, also sending Bitcoin well into the red with a decrease of around 8% in the past 24 hours alone. What is going on?

Evergrande Real Estate

Evergrande Real Estate group became one of the leading companies in China when it comes to real estate. According to BBC, it has developed over 1,300 projects in more than 280 Chinese cities, and it’s also the owner of one of the country’s largest football teams – Guangzhou FC.

It has borrowed over $300 billion from over 171 domestic banks and 121 other financial institutions. As Beijing implemented last year new rules that control the amount of money owed by big real estate developers, Evergrande was forced to offer its properties at massive discounts.

The company did so to ensure there’s enough money coming in to keep its business model operational. Currently, Evergrande is struggling to meet the interest payments on its debt. The question is will Beijing bail them out?

Impact inside and Outside of China

Evergrande is one of the largest companies in the second largest economy in the world. Complicated macro and microeconomic postulates come into play when it comes to the impact that Evergrande’s potential fallout might have on the world’s economy.

There are several reasons for which these problems are serious and need proper consideration.

A lot of people bought properties from Evergrande before the company started building them, who now might lose their deposits if things go badly down.

Evergrande has an international supply chain, and it does business with many firms across the world, all of which face major financial risks should Evergrande default.

Major corporations do have a big impact on the country’s economy. Speaking on the matter was Mattie Bekink from the Economist Intelligence Unit (EIU), who outlined the above connections of Evergrande:

“The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms.”

If Evergrande defaults, its lenders (the 292 financial institutions) may be forced to lend less and increase rates, which would trigger credit crunch. Some of them rely on debt to grow, and in some particular cases, they might even be unable to function without it.

Market Impact

Over the past 6 months Evergrande’s stock has sunk over 80%. Just today, the company’s shares plunged over 10%.

This has lead a wider dip in the Hang Seng Index, which tracks major Chinese companies, to decrease by 3.3%, marking its biggest loss since late in July. It seems that the property fears are spreading beyond Evergrande.

The global markets also took a turn to worse in pre-market trading hours. According to CNN, the S&P500 futures are down 1%, and so are DOW and NASDAQ futures.

So What About Bitcoin?

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