Investment Idea

Evergrande and crypto

Anna Svahn
30/09/2021 | 2 min read

The world's largest real estate company, with more than $ 300 billion in debt, recently went out and said they do not know if they will be able to pay back to their lenders. This triggered a “PTSD” (post-traumatic stress disorder) reaction where all the world markets saw a new Lehman situation in front of them and the risk sentiment quickly went from "on" to "off".

Since the peak in early September, the S&P 500 has fallen just over 4%, but if we zoom out, the large-cap index still looks very strong. However, it is not only the world stock markets that have been affected by the fall of the real estate giant, but also the entire crypto market fell sharply.  

When something happens that creates a general risk-off mentality, it leads to assets that usually have little or no correlation to each other collapsing. This is not new, or unusual, or needs to mean anything other than that some markets will soon offer buying positions while others fall back towards a fairer valuation.

Stablecoin with unclear backing

But how important is Evergrande for all markets, and perhaps especially for crypto, which fell back after just seeing a couple of positive weeks after months sideways. 

In the case of crypto, however, the concerns are about whether the criticized stack coin company Tether backs the USDT (Tether US dollar stable coin) with Evergrande bonds or not. It turned out that even though the USDT should be 100% backed by US dollars as a stable coin, the truth was a notch away. Instead, Tether has said that yes, USDT is always backed by Tether reserves, but (there is always a but), that these are not just fiat.

Apparently, in some cases, Tether can also be backed by bonds, and it seems that some of these are issued in China. Tether themselves deny that they would own any Evergrande bonds, but since they do not allow external auditing, it is impossible to know. If it were the case that Tether could not back down the USDT with the value promised, it would shake confidence in the entire crypto sector and prices could definitely fall further.

Long-term impact for Bitcoin and Ether

Evergrande, however, lacks any connection to, for example, Bitcoin and Ether, which means that the price reaction we are seeing in the market now is noise rather than signals. Like other markets, however, crypto moves in cycles and we have recently left a bull market behind. Bitcoin rose in 2020 from the lowest level around 4000 USD, to a maximum of around 63,000 USD, an increase of more than 15 times, and despite the world's largest cryptocurrency declining, the exchange rate is still trading more than 10 times higher than 18 months ago.

For Ether, the development has been even more impressive. From bottoming out at $ 116, the price then rose to over $ 4,000, and is now trading at just under $ 3,000.

If Evergrande was just the last catalyst that once and for all ended the 2021 bull market, it is not possible to say today, but if history says something about the future, it could mean that in the next cycle we see higher prices than now. If this will happen and how long it might take is unpredictable though.


This information is in the sole responsibility of the guest author and does not necessarily represent the opinion of Bank Vontobel Europe AG or any other company of the Vontobel Group. The further development of the index or a company as well as its share price depends on a large number of company-, group- and sector-specific as well as economic factors. When forming his investment decision, each investor must take into account the risk of price losses. Please note that investing in these products will not generate ongoing income.

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