Why China’s default risk has caused Bitcoin to plummet

Bitcoin is down about 10% on Monday (20), from $48,000 to $42,500, while Ethereum is down more than 11%, with most other cryptocurrencies down 10% to 15%.

It could be the whole cause. Tensions in China and Hong Kong caused property developer Sinic Holdings to lose 87% of its market value, its first significant decline since 2008.

This may indicate that Evergrande is old news. The real estate sector as a whole in China and Hong Kong may be in the news now, with the Hang Seng real estate index down about 6.7%.

Raw materials are declining. The Hang Seng Index shows it at -6%, with Oil down 1% as lower demand is likely to be expected.

Problems are common in the insurance industry. Ping An is down 5.8%. Chinese media reported that, according to a rough translation:

For real estate companies such as Evergrande, Blu-ray and Oceanwide, which have received a lot of market interest, Ping An Insurance’s capital is ‘no exposure’.Regardless of whether it is equity or debt.

Which here translates as one of the largest real estate companies in China is also in trouble.

Thus, Evergrande could be the tip of the iceberg, with the selloff extending to the banking sector as well, with China Merchants Bank down more than 9%. They have $1 trillion in assets.

Almost everywhere in the world, stocks and futures are down about 1% to 2%, with the exception of South Korea, probably in part because people are selling Chinese stocks listed in other countries.

The dollar rose about 0.16% and gold also rose by about 0.17% as Asian investors likely rush to liquidity, So why is bitcoin dropping?

Bitcoin

With liquidation now extending to some banks, it is not clear if this can be kept in check as the entire real estate market in China appears to be in trouble, and it is very difficult to rescue.

The real estate price index fell to 2016 levels, erasing five years of gains. This means that some mortgages allocated during this period may be red.

Therefore, standards can increase. Any and all defaults are a loss to the bank because when it “prints” money for lending, that printed money must be returned, if not by the borrower, then by the bank.

Thus, banks act more quickly to repossess real estate in negative equity positions, thus exacerbating an already weak position, which could lead to more defaults and a downward spiral.

This vortex leads to bank failure, a situation that could technically mean losing all deposits in the bank.

And here is the big problem of China. It doesn’t actually have a money printer. It clearly does not have the status of a global reserve dollar that can export inflation, or the pattern of dollar oil that supports it, and it does not even have the euro’s global share of about 30% in trade.

Instead, there is an artificial peg to the dollar, which usually does not hold. It made your cash position very fragile.

If the pressure drops, what you think will happen if a proper crisis develops, it’s not entirely clear what should happen. Intuitively, you might think that the Chinese yuan should strengthen because China is a large exporter and therefore many foreign currencies are exchanged for the Chinese yuan.

If it gets stronger, it may even reach dollar parity, which should be a huge problem because its products become expensive and thus its exports decline and the economy enters a bigger crisis or a structural and permanent crisis.

Theoretically, such a strengthening of the CNY might give them the impression that they are plunging the market to maintain a steady CNY or an undervalued value against the dollar.

So it makes sense to have a situation where the banks cannot be fully trusted with someone with more than $100,000, and the CNY cannot be trusted because it will flood the market, as declining exports due to structural financial changes could be devastating to the economy.

A perfect position in many ways for Bitcoin, but down, not up. This is probably because companies in London, New York, Shanghai, Amsterdam and, to some extent, Paris, as well as Frankfurt, as far as we suspect, are using bitcoin in their public trading strategies, and possibly in hedge funds and outlets.

We started noticing this in the middle of 2020 in select financial centers, where previously bitcoin would have jumped when retail investors were fully in charge.

However, these quantum kids have incorporated bitcoin into the stock markets, perhaps in part because there are some now. ETFs e ETNs, who tend to benefit from the printer, but are also affected by things like that.

However, we believe this effect is temporary because supply and demand should start as soon as the “synthetic” game is absorbed, and demand that you think should increase at least in Asia because there is no other suitable unit of account. Banking and securities sector.

But clearly what’s really going to happen is that it’s time to say it. Once you grasp the initial remixing, you would think that all those trillions that would have gone to China will go to Europe and America, while the Chinese themselves will go to bitcoin, but how this potential echo of 2008 will disappear. Unfolds is not yet clear.