It's been an uproarious week in the finance and crypto worlds. Markets across the globe fell over mounting concerns regarding Evergrande, a Chinese real estate company that is shaking up the world with its immense debt crisis.
Evergrande is arguably one of the most successful companies in China, operating in over 230 Chinese cities and boasting a count of around 1,300 developed projects. Over the course of the company’s lifespan, they have borrowed over $300 billion from more than 171 domestic banks and 121 other financial firms. (Cryptopotato) However, government crackdowns led to Evergrande offering discounts on properties that it couldn’t afford, leaving them unable to pay the now insurmountable accumulated debt.
The scope of their borrowing is global, meaning that if Evergrande cannot pay their debts, this could be a crunch felt across the world. The total liability number now hovers around $305 billion dollars, with the company warning that it may be unable to make upcoming payments. (Reuters) The domino effect that such a default could cause is creating a stir amongst global investors.
How does this affect the crypto market? Unfortunately for the crypto world, it seems there is still a slight correlation with the equities market, resulting in a corresponding sell-off. Because crypto is still so new to so many investors, its natural volatility makes it appear as a riskier asset to hold. Therefore, when the market goes down, more reserved investors tend to sell. Where others see fear, some crypto investors are taking advantage of the dip.
El Salvador, in particular, understood the assignment, buying the Bitcoin dip to help fund its new crypto-driven government initiatives. Nayib Bukele, President of El Salvador, tweeted that the country purchased 150 more Bitcoin and now holds 700 Bitcoin in total. When Bukele did the math, with the current value of the 150 Bitcoin being somewhere around $6.4 million, he announced that the total amount of Bitcoin held by El Salvador would amount to roughly $29.7 million US Dollars. (MarketWatch)
“They can never beat you if you buy the dips,” added Bukele. Spoken like a seasoned crypto investor.
El Salvador isn’t the only big investor buying up Bitcoin. The third-largest crypto whale used this latest dip in the market to purchase $13 million Bitcoin at a price of $40.5 thousand apiece. This investor now holds over 111,000 of the Bitcoin in existence, which adds up to approximately $4.75 billion in US Dollars. (CryptoPotato)
It’s apparent from the current market fluctuation that investors are still learning the relationship between traditional equities and cryptocurrency. Consider crypto’s correlation with the stock market this week, where the S&P 500 dipped 2%, resulting in an 8% BTC selloff. This could be due to institutional crypto adoption, which comes with institutional investment strategies tied to the more traditional financial world. This is causing some aggravation on the part of crypto enthusiasts who fear permanent change in digital asset ideology.
One reporter noted, “Institutional investors are pragmatic, cautious, and seek to maximize returns and mitigate losses. They don’t share the ideological convictions of Bitcoin hodlers or their wilder expectations for Bitcoin’s price. As they continue pouring into crypto, traders will have to constantly reevaluate and price in their froth and selling hands.” (CryptoPotato)
There’s an understandable learning curve in the current market. With over 200 million new crypto adopters embracing the new market since January of 2021 and more onboarding every day, crypto may still feel unfamiliar in the portfolios of many new investors. The potential changes crypto brings to finance are massively beneficial to consumers, but it is taking some time for investors to adapt to the future of finance.
Even Gary Gensler, United States Securities and Exchange Commission Chairman, cannot ignore the positive changes that crypto is bringing to the traditional market. Gensler, who taught a blockchain technology course at MIT, is known for his interest in disruptive technologies and serves as a complicated voice on behalf of national crypto adoption. He seeks heavy regulation on behalf of the SEC but doesn’t deny the value of crypto as a whole. “Whoever Satoshi Nakamoto was, it’s led to real change,” said Gensler. “It’s pushing at the side of central banks around the globe to reconsider how to provide payments systems, it’s pushing on the side as a catalyst for change in finance and fintech.” (Blockworks)
Like any new disruption, crypto is creating palpable culture shock. Investors are warming up to it, but still figuring out how crypto fits into their current understanding of the financial world. Sell-offs won’t always be the first reaction once Bitcoin builds trust in a new and broader investment space. The hype is real, crypto is a catalyst for change—positive change—and the new patterns investors exhibit serve as proof that the world believes in a brighter future for the market as we know it.
Top market movers as of September 24, 2021
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