Evergrande's Collapse: What Does It Mean for Bitcoin and Cryptocurrencies?

The recent bankruptcy declaration of China's real estate giant, Evergrande, under the Chapter 15 of the US Bankruptcy Law has sent shockwaves through global financial markets, and Bitcoin along with cryptocurrencies in general has not been immune to its effects. The price of the premier cryptocurrency took a hit following the news, continuing its historical trend of being sensitive to macroeconomic crises.

First, what is EVERGRANDE?

Evergrande, which once held the title of the globe's most valuable real estate entity between 2018 and 2021, boasts a presence in almost 300 Chinese cities and employs a workforce of around 125,000. While its primary focus was real estate, Evergrande's portfolio extended to areas like theme parks, consumer products, electric vehicles, and even sports franchises. However, beneath this vast empire was a ticking time bomb of debt. The company's aggressive expansion was largely fueled by borrowed capital. As the Chinese authorities began tightening the noose around the real estate bubble with stricter credit policies, Evergrande's foundations began to shake.

Implications for Bitcoin and the Cryptocurrencies:

I personally think it is all not bad for crypto, let's get the facts right:

Bitcoin has historically shown sensitivity to global macroeconomic crises. For instance, the largest banking crisis after the Lehman Brothers collapse in the US triggered the creation of Bitcoin. Bitcoin was born after a crisis. Evergrande's debt is equivalent to 2% of China's GDP, here you can see the crumbling debt-based fiat system.

The Evergrande crisis highlights the flaws of the debt-based fiat system, managed by large organizations and governments. In times of economic crises, states often resort to printing more money, leading to inflation and increased living costs. With a scarce asset like Bitcoin, individuals can safeguard the value of their labor. As more fiat money floods the market, the need to own crypto as a hedge against the inevitable depreciation of state-controlled money will rise.

With diminishing investment alternatives, especially as bonds no longer serve as a hedge against recessions and the real estate sector becoming an increasingly unlikely hedge against inflation, investors will likely turn to assets that can store value. Bitcoin, being a true store of value, stands out as the prime choice, but so do cryptocurrencies.

This is a reminder of the vulnerabilities inherent in the global financial system. While the short-term implications for Bitcoin and the broader crypto market may be bearish, the long-term outlook remains bullish, as it always was. As traditional financial systems show signs of strain, the decentralized, transparent, and immutable nature of cryptocurrencies becomes even more appealing.

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