Evergrande fiasco stopped for the time being, so caution is required now

The Evergrande bankruptcy has been averted for the time being. However, crypto investors should not underestimate the danger to Bitcoin and Co. that comes from crashes in the traditional financial market.

A glance at China shows how sensitively the markets react these days to reports from the financial sector. After the Evergrande Group, China’s second largest real estate developer, reported that it would be able to service outstanding interest payments contrary to expectations, sentiment turned positive again. Not only the stock, but also the crypto markets are therefore listed today in the plus.

Bellham Bitcoin (BTC), for example, has a daily profit of around 4.5 percent and is trading at 44,039 US dollars (USD) at the time of writing. The second and third placed Ether (ETH) and Cardano (ADA) make up even more ground. ETH is available for $ 3,122 each and ADA for $ 2.26. The coins are thus trading at 8.3 and 10.1 percent for the day.

Signs of recovery in Bitcoin.

The fact that Bitcoin is so sensitive to the news situation outside of the crypto sector surprised many market observers. After all, the cryptocurrency is getting ready to serve as a protection against inflation – and to protect investors against precisely these imponderables in the financial market. What happened?

Kill the chicken to scare the monkeys

Evergrande announced on Monday that it would not be able to service outstanding interest coupon payments due today, Thursday (23 September). It was said that there were liquidity problems. But if the second largest real estate company in the world’s second largest economy starts to falter, that is no small matter. On the contrary: in 2008 the global financial crisis spread through the real estate sector. Investors also worried about the reluctance of the Chinese government, which has a say in corporations of this size. Do you want to make an example of Evergrande?

But for now, the fears have been dispelled: The Evergrande Group can still service the interest payments due today in the amount of 83.5 million USD. In addition to the Dow Jones, S&P 500, Nasdaq and DAX, this is also good news for the crypto market. Because not only are the top coins climbing up, the overall market is also up a remarkable 7.1 percent and has a market capitalization of two trillion USD again.

How exactly Evergrande was able to raise the money for the 5.8 percent interest payments for the bond due in 2025 is not known. The fact that the Chinese Central Bank (PBOC) brought $ 18.6 billion (120 billion yuan) of fresh liquidity into the markets should at least have helped.

However, the danger posed by the Chinese real estate sector is far from over. The Evergrande bankruptcy may be off the table for the time being. However, if you look at the long-term chart, there can be no talk of recovery. The company has been on a downward trend since July 2020 and has lost around 90 percent of its value since the medium-term top at USD 25.

Evergrande 1
Evergrande Group share price. Source: Yahoo Finance.

The past price slide on the crypto market has shown, however, that Bitcoin and Co. are – at least in the short term – not immune to crashes on the traditional financial market.

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