Evergrande’s impact on Bitcoin highlights how cryptocurrencies still have growing pains
- The impact of
China's real estate giant, Evergrande, on the crypto marketshows how cryptocurrenciesare falling short of being ‘digital gold’.
- While investors and traders are looking to keep liquidity on hand, miners have been raking up their reserves over the past 6.5 months — despite
Bitcoingetting more difficult to mine.
- Analysts peg that it’s not Bitcoin or other private cryptocurrencies at risk but stablecoins like Tether.
According to leading analysts, the downturn in the crypto market is nothing but investors rushing to liquidate their crypto funds for fear of China’s crisis disrupting the largest global financial balance. Moreover, professional traders are using the volatility to book profits by buying the dip and selling during recovery.
Bitcoin miners, on the other hand, are holding on to their funds for dear life — or HODLing — even as it gets more difficult to mine for the cryptocurrency. Moreover, it’s not private currencies under attack right now. If any
Can you really call Bitcoin ‘digital gold’?
The crypto market has dipped below the $2 trillion market for the first time in two months with leading cryptocurrencies like Bitcoin, Ether, Cardano, Solana and others taking heavy hits.
The first downturn was brought on when El Salvador went live with its new Bitcoin Law but the latest crash is due to instability on the other side of the world — China. The country’s real estate giant, Evergrande, has racked up more than $300 billion and is unable to shell out enough for the interest payments.
The trouble with this crisis is that the assertion of Bitcoin being ‘ digital gold’ is now in question. The term implies that the cryptocurrency is a safe haven asset that will hold out against market stress or high inflation. Instead, it’s acting more like a company listed on the stock market where investors are rushing to sell to have more cash on hand amid a riskier global financial outlook.
“Yesterday's sell-off is another example of how BTC hasn’t completely decoupled from global financial markets… The goal is to establish a distinction on how the crypto market performs vs the global financial market, but it will take time as more and more financial institutions move part of their portfolios into crypto.”
To make it worse, as the crypto market was falling, the value of gold and government bonds was on the rise. Advocates of cryptocurrency argue that Bitcoin and its fellow cryptocurrencies are still relatively young — their volatility is likely to decline as the market grows and matures.
“Examples of systemic growth are better predictors of future performance than the price of Bitcoin alone. But because of increased regulation, attention, and broad adoption — we will continue to see everyday investors and financial institutions utilize cryptocurrencies and validate the underlying value proposition of digital assets over the long term.”
HODLers gonna HODL
One would think that with Bitcoin’s price going down, again, it is getting more difficult to mine — its hashrate increased for a fifth consecutive week — miners would be looking to get rid of the Bitcoin in their coffers as well.
And, even with the difficulty to mine for Bitcoin on the rise, it’s still 58% away from its peak in May. According to the company's weekly report, this means that around a quarter of the miners seen during the all time high continue to remain offline.
Which cryptocurrency is really at risk here?
Analysts told CNBC, it’s not private cryptocurrencies like Bitcoin and Ethereum that people need to worry about but stablecoins like Tether. The cryptocurrency is used by investors to buy and sell other cryptocurrencies quickly without having to leave the exchange.
And, while Tether is a stablecoin where its ratio to the dollar is 1:1, it’s not backed directly by the fiat currency. Instead, it is backed by commercial paper — short term debt issued by companies to raise funds — most of which is out of China.
Even though the company did come out to say that it doesn’t have any exposure to Evergrande, there are still other Chinese companies that may be at risk due to the ripple effect put into motion by Evergrande’s downfall.
The silver lining is that, as expected, the Chinese government has come to Evergrande’s rescue. The central bank has injected 120 billion yuan, which is around $19 billion, into the banking system in hopes of bailing out the property developer earlier today. This is after it already pushed in 90 billion yuan — around $14 billion — on Friday. This is the most the government has pumped in since February, earlier this year.
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