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Could Evergrande's liquidation crash the crypto market?

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On January 29, 2024, news emerged that a Hong Kong court had decided to liquidate China Evergrande Group, a major Chinese developer. The 2021 default news and the company’s bankruptcy filing in 2023 сaused Bitcoin to drop by 9% and 10%, respectively. However, the Evergrande liquidation news for 2024 seems to have left the crypto market largely unaffected.  The itez editorial decided to find out how BTC used to react to Chinese developers' problems and whether to expect a drop this time.

Why Bitcoin is Reacting to Evergrande's Problems

Evergrande is one of the largest Chinese developers. In 2020, the company signed $103 billion worth of contracts and took the first place in the niche.

Following the 2021 default news, Evergrande began to lose ground sharply. As a result, in January 2024, a Hong Kong court decided to liquidate the company as it could not pay creditors a huge debt of $300 billion (this is almost the GDP of Chile, Romania, the Czech Republic, or six Sudans at once).

Evergrande is a part of the whole financial system where everything is interconnected. The bankruptcy of such a large company could potentially trigger a new crisis or, at the very least, harm other market participants.  This interconnectedness has already affected Bitcoin twice: 

1️⃣ In November 2021, Evergrande’s default shook the market, and BTC decreased by 9%.

Simultaneously, the American Ministry of Finance held an auction for the sale of 30-year US government bonds. American authorities use them to borrow money from investors, who in return receive interest, almost like on bank deposits. However, they accumulate for 30 years, not for a year or two.

US government bonds are one of the most stable and safest securities as the issuer always fulfils its payment obligations. Government bonds are a good choice for investors who want to beat inflation. Highly-demanded bonds' price skyrocketed, and therefore their profitability—bonds can be sold anytime during the next 30 years and at a very favourable rate.

Investors, anticipating economic problems due to Evergrande’s default, transferred assets from construction and cryptocurrencies to these government bonds, causing Bitcoin to fall off the cliff.

2️⃣ In August 2023, Evergrande filed for bankruptcy, and Bitcoin dropped by 10%

Analysts believe that the underlying reason was the risk of Chinese yuan’s devaluation due to Evergrande's problems. Investors began to move their assets from cryptocurrencies, stocks, and securities to fiat to buy what they had long wanted before the money completely depreciated.

Rumours also circulated online suggesting that the Evergrande company is associated with the issuer of the most capitalised stablecoin, Tether (USDT), Tether Limited. If USDT is backed by Evergrande shares, its liquidation could impact the coin's value. However, Tether Limited denies any connections.

Will BTC drop due to Evergrande's problems this time?

The cryptocurrency market reacts sensitively and quickly to the problems of large companies. However, this time, it seems like the news of Evergrande's liquidation passed rather quietly.

The fact is that the Chinese developer’s problems began back in 2021, which feels like the last century for the crypto industry. Since then, the market has already survived Evergrande's default and bankruptcy filing. Investors who wanted to withdraw money from crypto amid the company’s problems likely already executed their plans. Consequently, the news about Evergrande's liquidation did not prompt a market collapse.

The evolving reaction of the crypto community to company problems is evident. In 2021, investors feared a further market drop, but by 2024, they suddenly started to oppose Bitcoin to Evergrande. BTC cannot be liquidated, which means investing in cryptocurrency is safer than investing in construction companies' securities.

What should I do: buy or sell Bitcoin?

In 2024, after 13 years of struggle, the crypto industry achieved the launch of spot Bitcoin ETFs in the United States. This tool provides institutions with opportunities to profit from digital assets. Bitcoin halving is ahead, which always takes the coin’s rate to new absolute highs. This means that neither Evergrande’s problems nor other pitfalls will prevent BTC from growing in 2024.

While the cryptocurrency market is unpredictable,buying Bitcoin today could be a wise decision. An intuitive interface, favourable exchange rates, payments with familiar bank cards, and complete legality—all this is itez.com. You can purchase crypto for up to €300 without verification.

Before purchasing, observe BTC 2024 price predictions by experts.

🤔 What do you think about Evergrand and its liquidation?

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Here are three other cool articles:

What is a spot bitcoin ETF, and why does everyone talk about it

5 most anticipated airdrops 2024

BitVM to make bitcoin smarter than altcoins

This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.

Maria Kachura
Maria Kachura

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