Could Evergrande debt default in China cause crypto markets to crash?
INVESTORS around the world are holding their breath as the Evergrande Group struggles to avoid a default on its debt.
We explain how a potential collapse could affect cryptocurrency markets - and whether they will crash.
As always, cryptocurrency investors should know that making money in this way isn't guaranteed and you could lose all the cash you put in.
That's why it's important to not invest more than you can afford, or into anything you don't understand.
Cryptocurrencies are highly volatile and can make large swings with no notice.
Due to the scant regulation for crypto firms, you'll be without protection if and when things go wrong.
What is the Evergrande Group?
The Evergrande Group is the second largest property developer in China by sales.
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Formerly known as the Hengda, it was founded by businessman Hui Ka Yan in 1996.
Evergrande is said to be the world's most indebted developer with more than $300billion worth of liabilites, which is why it's getting attention.
In fact, a business default could hurt more than just China's economy.
In November, reported that Evergrande had narrowly avoided default again by paying overdue interest on some of its debt.
However, major credit ratings firm Fitch Ratings today, December 9, labeled Evergrande a defaulter for the first time.
Fitch Ratings placed the developer in its "restricted default" category as it failed to meet two coupon payments after a grace period expired on Monday.
The designation means a business has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations.
How an Evergrande default could affect cryptos
An Evergrande default could affect crypto markets, although how much by depends on who you ask.
In other words, it's difficult to say exactly what effect it may have.
For example, Laith Khalaf, head of investment analysis at AJ Bell, told The Sun: "Crypto markets are not being driven by events that happen in the wider economy, so a default by a big company like Evergrande, or indeed a global economic slowdown, shouldn’t materially affect the price of cryptocurrencies.
"Crypto is largely held as a speculative asset, on the basis of stellar past performance, which might not be repeated in future."
He added that "blind bullishness" currently keeps pushing up cryptocurrency values, and a potential Evergrande default won't "knock that off course".
Meanwhile, Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said an Evergrande collapse would hit the construction and finance sectors and could potentially affect demand for raw materials.
This uncertainty could hurt stablecoins like Tether over fears that cash reserves backing the crypto asset are made up of debt linked to Chinese firms, she added.
Mrs Streeter said: "This could cause a knock on effect to other coins and tokens which are already vulnerable to overall sentiment in financial markets."
Whether or not the crypto markets will nose dive is yet to be determined, but Keegan Francis, crypto editor and expert of Finder, added that it "wouldn’t necessarily be all that novel of an event".
He told The Sun: "For seasoned crypto folk, that’d just be another day on the market.
"Based on our panel of 50 fintech industry leaders, 31% said that the threat of a default was the strongest contributor to the price drop earlier in the year.
"Cascades of defaults is certainly something that would not just affect the cryptocurrency markets, but global markets more broadly."
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