Bitcoin plunges over 10% in global market rout led by China’s housing bubble crisis

"Bitcoin-Börse" by wuestenigel (licensed under CC BY 2.0)
“Bitcoin-Börse” by wuestenigel (licensed under CC BY 2.0)

Key Takeaways:

  • On Monday, Bitcoin fell below $45,000 to reach $42,659.5 before recovering.
  • Evergrande’s debt crisis created turmoil in the markets, which precipitated Bitcoin’s fall.
  • FUD over Evergrande’s debt debacle are affecting crypto and other asset classes.

NEW DELHI (CoinChapter.com) — Bitcoin plunged on Monday as the market saw widespread selloff over fears of Evergrande’s potentially catastrophic debt default. The selloff pushed the crypto market’s flagship token Bitcoin to levels last seen in the first week of August.

Aside from Bitcoin, other major cryptocurrencies such as Ether (-7.88%), ADA (-8.35%), XRP (-11.88%), DOT (-12.76%), etc. fell as well. As a result, the overall crypto market capitalization went below $2 trillion, falling 8.71% in 24-Hours to reach $1.94 trillion.

In the midst of this, El Salvador’s President Bukele announced that the country bought the dip to add 150 BTC to its crypto coffers, increasing its tally to 700 BTC.

Evergrande Group is China’s second-biggest property developer by sales. However, the firm is struggling with a severe liquidity crisis due to a debt amounting to more than $300 billion. The possibility of contagion from Evergrande’s default has rattled the markets, with Dow futures tumbling more than 300 points.

The Hong Kong stock market plummeted as well, with the Hang Seng Index reporting a fall of 3.3% to close at 23,099.14. Evergrande Group shares in Hong Kong plunged 10.24%, leading to an overall loss of 35.7% between Sept 13 to Sept 20. The company’s potential failure may set off a chain reaction in China and the overseas market.

The Evergrande Crisis

The Fortune 500 company is among the world’s most debt-ridden property developers. The company borrowed money to expand its business, with about 67% of its debt being cash paid by customers for properties still in development.

The company expects significant continuing decline in contract sales in September, thereby resulting in the continuous deterioration of cash collection by the group, which would in turn place tremendous pressure on the group’s cashflow and liquidity

Evergrande in its Sept 14 bourse filing

The company usually sees strong sales in September, but declining consumer confidence might result in decreased revenue. In addition, Evergrande wants to sell its assets in Evergrande New Energy Vehicle Group, its EV unit, and Evergrande Property Services Group to improve its cash flow. However, there has not been significant progress on this front.

Also Read: BNB prices fall 11% as Binance faces probe into possible insider trading.

Market confidence in Evergrande started to erode in May when the company struggled to raise cash to pay its creditors. The real estate developer’s cash crunch shot up recently after most of its subsidiaries failed to repay wealth management products, a major source of short-term funding for the company.

In detail, a wealth management product is an uninsured financial product that offers a high-interest rate.

Fear of global repercussions from Evergrande’s failures sparked comparison with the U.S Lehman Brothers implosion in 2008. However, Simon MacAdam, senior global economist at Capital Economics, said that a managed default or collapse of Evergrande would not have much impact on the global markets.

For now, those impacted by Evergrande’s default include banks, investors, bondholders, suppliers, contractors, and home-buyers.

Bitcoin’s Tumble

Bitcoin fell below key support at $45,000, as the crypt market followed suit to move below the $2 trillion market cap after enjoying a relatively bullish week. As Bitcoin tested support near the $42,000 mark, Ether (ETH) fell 13% between high($3,358) to low($2,917) levels before rebounding.

Both BTC and ETH reached levels last seen in early August, eating up the gains made in the last six weeks. While Evergrande’s treacherous future was a reason, regulatory scrutiny may have caused the panic selling as well. U.S regulators are investigating crypto exchange Binance for possible insider trading and market manipulation.

Also Read: Wall Street bigshots enter Bitcoin and crypto markets amid bullish BTC signs.

Meanwhile, Tether Ltd. refuted claims that commercial papers (short-term debt instruments) from the troubled Chinese real estate developer back its dollar-pegged currency, USDT. However, it did not disclose any specifics, which has led to doubts regarding Tether’s claims.

The selling pressure pushed Bitcoin (BTC) prices below their 200-Day (Red) and 50-Day (Yellow) Moving Average line. BTC needs to stay above its 200-Day MA to maintain a long-term bullish outlook. As such, Bitcoin is now bearish across all time horizons.

Bitcoin prices moved below their MA lines. Source: BTCUSD on Tradingview.com
Bitcoin prices moved below their MA lines. Source: BTCUSD on Tradingview.com

Immediate support at $43,001 is strong for Bitcoin. However, if the sell-off continues, BTC might test support at $41,750. A fall to these levels may incite further sell-off, dragging prices to support near $40,400, maybe below if bulls fail to consolidate.

Long-term Bitcoin holders are still bullish, given that younger (one week to one month and 3-6 months old) coins led the sell-off.

On the other hand, resistance for BTC is near its 200-Day MA at $46,052. Additionally, the 50-Day MA and 26-Day (Green) Exponential MA form a confluence near resistance at $47,357. Bulls will try to flip this resistance into support. If they succeed, the next resistance target would be near the coveted $50,000 mark at $49,556.

BTC's MACD line moved away from its signal line. Source: BTCUSD on Tradingview.com
BTC’s MACD line moved away from its signal line. Source: BTCUSD on Tradingview.com

BTC’s MACD seemed primed for a bullish crossover before today’s fall. However, like bars on the histogram show, the MACD line (difference fo 12-Day and 26-Day EMA) moved away from its signal line (9-Day EMA of MACD).

The relative strength index for Bitcoin is neutral at 40.55. However, the RSI trendline is moving downwards towards the oversold conditions.

At the time of writing, BTC was trading at $44,459, down.

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