Evergrande’s Debt Default Sparks Fears in Market

Key Takeaways

Evergrande has defaulted after missing an $82.5 million debt repayment.
Some fear that the update could negatively impact global markets.
Evergrande shares hit a record low Wednesday, while Bitcoin, gold, and stocks are down today.

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Chinese real estate giant Evergrande Group has defaulted on its dollar debt for the first time.

Evergrande Defaults on Repayment

Evergrande has defaulted.

The Chinese real estate developer missed an $82.5 million debt repayment on U.S. dollar bonds worth due Monday, according to several reports.

The default has led to widespread speculation that Evergrande is now bankrupt, though the firm is yet to post any official declaration of insolvency. Moreover, new worries have emerged about the potential spillover into China’s real estate sector and impact on the global economy.

The Shenzhen-based firm owes more than $300 billion to various parties, including investors, banks, and suppliers. Notably, Evergrande is not the only major Chinese real estate firm currently facing a crisis. This week, the Hong Kong Stock Exchange suspended Kaisa Group Holdings’ shares after the company missed a Tuesday deadline to pay off a $400 million debt.

Due to these developments, many experts have predicted an economic downturn in 2022. It’s possible that such an event could have a big impact on crypto markets, too. Bitcoin and other assets have behaved as “risk on” in other similar circumstances such as “Black Thursday” in March 2020, when global markets crashed amid panic over Coronavirus. Bitcoin also reacted negatively to the news of the new Omicron variant and has mostly been trading sideways since.

However, some leading crypto figures remain skeptical of the potential impact of the event. Emin Gün Sirer, the founder and CEO of Ava Labs, suggested that it’s unlikely that the latest default will crash crypto. “How many times can the same dumb company, whose near-insolvency was an open secret for almost a decade, crash the crypto markets?” he wrote in a Dec. 6 tweet.

Another important part of the Evergrande crisis is its alleged link with Tether’s USDT, the world’s most liquid stablecoin. A recent Bloomberg BW investigation claimed that Tether is using commercial paper issued by large Chinese real estate companies to back a significant portion of its stablecoin reserves. Tether published a blog post alleging that Bloomberg BW was spreading “misinformation” and denied holding any Evergrande debt at the time.

Evergrande’s shares hit a record low of HK$1.72 Wednesday, while gold and stock indexes like the Dow Jones Industrial Average slid today. Bitcoin, meanwhile, is currently trading at $48,650, down 3.4% in the last 24 hours. The leading crypto asset has tumbled 30% from its all-time high price of roughly $69,000 recorded in November.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

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