Bitcoin Jumps on China’s Lehman Brothers
Bitcoin is up some 10% since Monday, rising from $44,000 to above $48,000 at the time of writing, with eth also touching $3,500.
Numerous factors are contributing to a bit of bullishness after a small dip, including a worsening of the situation in China where Evergrande defaulted on banks.
Evergrande is getting ever small, with its attempt to quickly sell assets leading to a plunge in property sales to the point now China’s major banks have been notified Evergrande won’t be able to pay loan interest due on September 20th.
They’re discussing the possibility of extending payments and rolling over some loans with Evergrande owing some $88 billion to banks.
The property developer has more than $300 billion in liabilities, including to tens of thousands of retail Chinese investors who effectively lended money to them.
The deleveraging now is affecting property prices as well as demand as potential buyers wait for prices to fall further.
That can cascade to an increase in house repossessions as banks become less tolerant of mortgagees in default on negative equity properties, potentially dampening more the housing market, and thus reinforcing that downwards spiral.
Making it potentially a Lehman Brothers moment in a year that has seen an increase in defaults in corporate bond markets.
Authorities thus may intervene, but their problem is that Evergrande is not the only property developer in some difficulties. Others thus would need to be bailed out as well, and even if there are bailouts there would probably be haircuts.
The cost to the government can be at least $1 trillion as just Evergrande is 2% of the GDP, with it unclear whether it is willing to socialize losses after years of profits were put into private pockets.
They may thus just let it fall, with stress tests suggesting banks would be able to handle it, but they probably haven’t quite stress tested a property crash of a size and depth unknown.
So Chinese investors may well be buying bitcoin with a recent academic paper stating China’s attempts to ban the crypto have not been effective, as we suspected.
The authors argue Chinese investors still have significant sway over the crypto market, although that has probably reduced after some mining farms were kicked out, but Chinese authorities have failed to prevent crypto investment which may increase in light of the financial troubles there so as to escape both risks from the banking system and from government issued money.
In US the problem may be a bit different with Democrats plaining to present a $3 trillion tax increase bill, with that 100% increase in taxation potentially shocking the economy.
In which case obviously they’ll just print so some investors may well be trying to front-run the brrr with bitcoin.
On other news, Rama Gandhi, the former deputy governor of India’s Central Bank, has argued that cryptos should be treated as an asset or a commodity.
Once cryptocurrencies are accepted, rules governing commodity exchanges could apply and the coins could be used to pay for goods and services, Gandhi said. “Then automatically people can start buying, selling and holding.”
India is the biggest market to enter cryptos this year with adoption there growing and a previously uncertain political environment so seemingly becoming more friendly.
While in El Salvador another four people protested the bitcoin bill as the Chivo wallet fixes all its issues and bitcoin legal tender starts becoming the new normal.
Elon Musk is also back at tweeting meme tokens, while Alexis Ohanian wore a cryptopunk NFT at the fashionable Met Gala.
So things seem to be back to all being good for bitcoin on this first autumn day, with defi kids stacking them tokens on yield legos as all watch whether a house of cards falls in China.
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