Buy the dip or the deposit? Experts intervene

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As the prospect of Chinese real estate giant Evergrande defaulting on $ 305 billion debt looms, experts weigh in on the impact of the company’s bankruptcy on legacy markets and cryptography.

Speculation as to whether the real estate investment giant will default has coincided with a downturn in the stock and crypto markets, leaving many analysts divided over whether traders should buy the decline or look to take profits in the fall. sight of a new bearish momentum.

At the time of writing, Bitcoin (BTC) is down about 13% since the decline began on September 18, while the S&P 500 is down 1.7% and the Hang Seng is down 2. , 8% over the same period.

Some argue that the eventual Evergande default could represent another moment for Lehman Brothers – citing the major investment bank’s 2008 declaration of bankruptcy on $ 600 billion in debt that sparked the global financial crisis.

However, speaking at the Greenwich Economic Forum on September 22, Bridgewater Associates co-chair and co-chief information officer Ray Dalio downplayed the significance of an Evergrande default and suggested that the debt is “manageable”.

Dalio admits that while investors will be stung, he believes Evergrande’s debt won’t cause structural damage, as the Chinese government may step in to restructure the company and strike deals with the company. He said:

“[The] The Lehman moment produced pervasive structural damage through the system that was not rectified until the Treasury intervened in terms of borrowing, then the Fed decided on quantitative easing, but it was not. not that kind of upheaval. “

Ming Tan, director of the Standard & Poor’s (S&P) rating agency, predicts that the Chinese state will step in to restructure Evergrande.

Speaking to the Financial Times on September 20, Tan speculated that this restructuring is likely to see the “profitable parts of [Evergrande’s] company bought by competitors ”, its debt securities being likely to be subscribed either by a consortium of Chinese commercial banks or directly by the local central bank.

Influencer Lark Davis isn’t too worried either:

Not everyone is so optimistic. CNBC’s Mad Money host Jim Cramer claimed that Evergrande’s debt problems will likely impact the crypto market, as nearly half of the reserves backing the main stablecoin Tether (USDT) are held in commercial paper.

Cramer urged investors to be cautious as Evergrande awaits a verdict on a possible government bailout, saying:

“I know crypto enthusiasts never want to hear me say sell, but if you have a big gain like I did, well, I beg you, don’t let it become a loss. Sell ​​some, stick around for a long time, then let’s wait and see if China changes its attitude on an Evergrande bailout.

While Tether has denied owning commercial paper issued by Evergrande, analysts have warned that the fallout from an Evergrande restructuring could have significant impacts on broader commercial paper markets.

“Tons of Chinese companies are at risk of being crushed by this fiasco, and they are exposed to Evergrande, which could cause real problems,” Cramer said.

Marty Bent, podcaster and co-founder of Great American Mining, also sounded the alarm in his September 20 newsletter.

Bent suggested that an Evergrande default would reveal how “the Western world is exposed to the Chinese economy” through investments in big real estate players, their debt securities, and debt issued by the Chinese Community Party (CCP ).

“Evergrande is sinking and is dragging other major real estate developers to China with it. The world is seeing another Lehman moment, ”he said.

Bent questioned the claim that Evergrande would likely be bailed out by the government, noting recent party pressure to curb Chinese capitalism and tighten regulations in the real estate market.

“The CCP has come out and said it does not plan to support real estate developers who are currently on the verge of bankruptcy. It will be interesting to see if they keep that posture as things get worse, ”he said.

The podcaster also noted that while he is not sure how the fallout from Evergrande will impact Bitcoin in the short to medium term, he is “grateful” to be able to hold Bitcoin as a hedge against the decree-backed global financial system. .

Related: ‘Extreme fear’ as Bitcoin drops below $ 40,000 … then bounces back

Evergrande’s share price steadily declined in 2021 as its credit problems escalated. After opening the year at around $ 14, the price now sits at $ 2.20, a loss of over 84%.