Bitcoin Dives 10%, Pulled By Evergrande Selloff

Updated on

Bitcoin and other cryptocurrencies dived on Monday amid the crisis of Chinese real estate giant Evergrande Property Services Group Ltd (HKG:6666). Bitcoin value fell 10% to $42,662, according to data from CoinMarketCap, followed by a significant drop in U.S. stocks.

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q2 2021 hedge fund letters, conferences and more

Bitcoin Dives On Evergrande

Besides bitcoin, Ethereum –the second-largest crypto project by market value– saw a 13% drop to $2,940. The fall affected not only the main cryptocurrencies but the entire digital currency market, which showed a decrease of more than 8% compared to the previous day.

The negative dynamics take place amid the 3.3% fall of the Hang Seng index of the Hong Kong Stock Exchange, following the announcement by the Chinese authorities on Monday that Evergrande, the world's most indebted real estate company, will not be able to pay its obligations.

Likewise, according to CNN, “It was the worst performance since May for the S&P (SPX) and the Nasdaq (COMP), while the Dow (INDU) logged its worst day since July.”

Last Sunday, the Chinese company began paying its investors in wealth management products with real estate. Its shares have fallen 85% in value so far this year to $0.26, the lowest since May 2010.

Due to the size of the company –which is the second-largest real estate company in the country– Evergrande's situation raises concerns that it could be the beginning of a real estate bubble and, possibly, a Chinese financial crisis.

Evergrande Crisis

Evergrande's difficulties stem from an acute liquidity crisis. The company, which is listed on the Hong Kong Stock Exchange, has liabilities totaling more than $300 billion, affecting more than 250 banks and non-banks.

Beginning September, some of its creditors demanded the immediate return of the money. On September 9, the company offered to repay the loans in installments for five years, a move that was rejected.

According to a note to clients by Edward Moya, senior market analyst of the Americas at Oanda, "The fallout from the Evergrande is putting a tremendous dent in risk appetite that is sending everything lower.”

He went on to assert that cryptocurrencies have had a positive despite the swinging price, "So it should not surprise Wall Street they are the first asset sold in the beginning of China-driven market selloff.”