Crypto Markets — September 2021: What Caused The Recent Sudden Price Decline?
Over the past week, financial markets, including stock markets and crypto markets, fell due to a mass sell-off. However, what caused the mass sell-off?
The recent price decline in the financial markets was started over concerns related to a well-known property developer in China. Evergrande is one of China’s largest property developers, but it also happens to be the most indebted property developer in the world. The company acknowledged on Tuesday, September 14th that it was unable to sell property and other assets fast enough to meet repayment deadlines for over $300 Billion in debt and that its cash flow was under tremendous pressure.
The company is in so much debt that its on-balance-sheet liabilities equal nearly 2% of China’s GDP and its off-balance-sheet liabilities add up to another 1% of China’s GDP.
The Debt Situation In China
The recent news surrounding Evergrande’s debt has drawn into focus the debt problems that have long been a problem for the Chinese economy. The overall amount of debt in China’s economy makes figuring out a solution to Evergrande’s debt problems all the more difficult for regulators in the country to solve.
Why Did The Markets Fall?
After the Evergrande Group’s debt problems became a focus in world media, fears over how the company’s debt problems could impact China’s economy began. Given China’s influence as one of the largest economies in the world, any potential negative impact on China’s economy could potentially impact the world economy. Fears over how the Evergrande Group’s problems could potentially impact the world economy caused a larger market sell-off.
Bitcoin and other cryptocurrencies have been caught up in this mass sell-off which has taken place in the traditional finance markets, ultimately causing the prices of cryptocurrencies to drop.
Since the drop, crypto markets have seen a slight rebound as fears over a possible Evergrande Group bankruptcy subsided when the company was able to come to an agreement with bondholders that would help it avoid defaulting on its obligations technically.
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