The price of bitcoin has fallen following the fiasco involving property developer Evergrande Group.
According to CoinDesk, bitcoin's price has fallen to $43,489 as of Sept. 20. The drop reflects an 8.6 percent fall from its Sept. 17 price. Other digital currencies have also seen price drops – with Ether experiencing a 10 percent fall and Dogecoin experiencing an 11 percent slide. Investors selling off risky assets for more stable ones drive the price drops, the Wall Street Journal (WSJ) reports.
Crypto-linked stocks have also suffered from the instability surrounding Evergrande. These include Coinbase Global, Inc., a crypto exchange platform that saw its shares fall 3.5 percent on Sept. 20. Even traditional markets such as the S&P 500 are not exempt, with the index dropping 1.7 percent.
The Shenzhen-based Evergrande's debt burden amounting to $305 billion is the largest for any publicly-traded real estate firm in the world. Some investors fear that the firm's failure could send ripples throughout China's economy – the world's second largest.
Meanwhile, investors who are closely watching the Evergrande situation are waiting to see whether Beijing will allow the company to default. "Evergrande's collapse would be the biggest test that China's financial system has faced in years," says Capital Economics Chief Asia Economist Mark Williams. He adds that while markets "don't seem concerned about the potential for financial contagion at the moment, that would change in the event of a large-scale default."
Analysts at the political risk consultancy firm SinoInsider think otherwise. They say Beijing "will not let Evergrande go bankrupt" because doing so would undermine China's stability. Real estate is one of the major contributors to China's growth, comprising 29 percent of its economic output. The SinoInsider analysts add that a major Chinese company going bankrupt "would have huge repercussions."
Crypto and the recent happenings in China
The WSJ cites some analysts claiming that Evergrande defaulting on its debt could impact the tether cryptocurrency. Tether plays a key role in the digital currency ecosystem because it is a "stablecoin" pegged to the U.S. dollar.
Traders frequently use tether to store value or shift assets between exchanges due to its stability. According to the Block, a crypto news and research website, around $71 billion of tether coins are currently in circulation.
Tether Holdings Ltd., the firm behind the digital coin, has disclosed that about half of its assets are held in commercial paper or certificates of deposit. However, many observers doubt this claim – with some suspecting tether's heavy exposure to Chinese commercial paper.
A later statement by the company clarifies that it has no debt or securities linked to Evergrande. Tether has kept its $1 value despite the selloff in other tokens, a clear sign that the markets still trust it.
Noelle Achison, head of market insights at Genesis Trading, warns that Tether is still susceptible if the Evergrande situation worsens. "If Evergrande collapses, it is very likely to trigger further collapses which could impact some of the commercial paper that Tether holds. That would be bad news not just for market stability, but for confidence," she says.
The Evergrande fiasco is just one of many happenings in China that could have a significant effect on digital token prices. A crackdown by the Chinese central bank has also contributed to the plunge in bitcoin prices. (Related: Bitcoin's 50 percent drop in value hits crypto loans and derivatives.)
The People's Bank of China (PBOC) has ordered the country's largest banks and payment platforms to intensify moves against cryptocurrency trading. Multiple firms have been told to "strictly implement" guidelines and notices from Chinese authorities that aim to curb risks related to cryptocurrency. The price of bitcoin has fallen by 9 percent as a result of this regulatory action.
The central bank has instructed firms to identify customers in their records who have accounts at digital currency exchanges or trade cryptocurrencies over the counter. The companies are then mandated to cut off those accounts' ability to send or receive money. According to the PBOC, virtual currencies threaten economic and financial stability. It adds that cryptocurrencies could also be used for illicit activities. (Related: China's crypto ban forces Bitcoin miners to sell out or flee overseas.)
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