The Evergrande crisis has already caused considerable tension among Wall Street investors. On Monday, the S&P 500 index fell by 1.7%. This effect quickly spills over into cryptocurrencies. These are the words of Jim Cramer, who said this in his CNBC show “Mad Money”.
The price of Bitcoin fell 5.7% on Tuesday to below $43,000. The reason was the growing fear of the Evergrande crisis, which could have a devastating effect on cryptocurrencies. Jim Cramer put it this way about the Evergrande crisis:
“I know that cryptocurrency lovers have never wanted to hear me say this. Sell, but if you have a big press like me, please do it. Don’t fall for a loss. Sell something, and keep an eye on the rest. See if China changes its attitude towards saving Evergrande”.
Evergrande’s crisis can affect all markets
Evergrande is China’s second most prominent real estate company. Recently, it has run into debt problems and is on the verge of liquidation and complete collapse (unless there is a rescue). The problem has been going on for months, when the company could not repay its $300 billion debt. These concerns about the company’s fate deepened during Monday. Then it became apparent that the company could not meet some of its bank loan liabilities.
The global scale of the crisis is not yet entirely clear, but nervousness is evident in all markets. Shares of Goldman Sachs and JP Morgan recorded a black day on Monday and showed some of the worst results.
Cramer warned his audience that buying a downturn, which had been the dominant strategy for the past 15 months, may no longer work (given the possible global effect of the Evergrande crisis).
Jim Cramer believes that Evergrande’s problems will likely spread to the cryptographic industry, given Tether and his connection to the world. This stablecoin is supposed to have real value backed by fiat currencies, and as Cramer put it, half of these treasury assets come from “Chinese commercial paper.” However, Tether denied the allegations.
“Tether said they have no exposure in Evergrande. But many Chinese companies have exposure in Evergrande, and this fiasco could destroy them. It could cause real trouble if companies start falling like dominoes.”
Stablecoins are mainly used to buy other cryptocurrencies. This means that their collapse could also lead to a failure in the price of bitcoins and other cryptocurrencies. Cramer said cryptocurrency ownership is now a “crowded trade”, even though cryptocurrencies themselves have the potential to enter the mainstream.
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To illustrate the situation, real estate represents 30% of China’s GDP. The company itself is responsible for 2% of the country’s GDP. Also, the company is responsible for up to 4% of all real estate sales in the country. But its sales are now (due to current problems) understandably declining.
However, some experts have suggested that the Evergrande crisis may be globally limited, as stocks and cryptocurrency markets are now more resilient to spontaneous volatility.
It is challenging to predict the future. Right now China will not let Evergrande fall and try to save it. In any case, it has once again been shown that the correlation with the stock market is significant here.