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The Evergrande Debt Crisis in China and What It Could Mean for Bitcoin

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The debt crisis of Evergrande – one of China’s largest companies, looms over the markets and spreads beyond properties. What does it mean for Bitcoin?

The financial world is watching Evergrande and what’s going on in China closely, as this has been undoubtedly the headliner for the past couple of weeks.

Today, global markets tumbled as Evergrande stock price lost another 10%, sending Bitcoin well into the red with a decrease of around 8% in the past 24 hours alone. But is the pain over?

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Evergrande – Chinese Real Estate Behemoth Sags

Evergrande managed to become one of the leading companies in China when it comes to real estate. Reportedly, it has developed over 1,300 projects in more than 280 Chinese cities, and it’s also the owner of one of the country’s largest football teams – Guangzhou FC.

It did so by borrowing over $300 billion from more than 171 domestic banks and 121 other financial firms. Last year, though, Beijing implemented new rules that control the amount of money owed by big real estate developers, and this led Evergrande to offer its properties at substantial discounts.

The company did so to ensure there’s enough money coming in to keep its business afloat. Now, however, it’s struggling to meet the interest payments on its debt, and it’s unclear whether Beijing will bail it out.

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Source: Time Magazine

Why Does It Matter Inside and Outside of China?

China is the world’s second-biggest economy, and Evergrande is one of the largest companies in the country. Complicated macro and microeconomic postulates come into play when it comes to the impact that Evergrande’s potential fallout might have on the world’s economy.

There are at least a few reasons for which these problems are serious and need proper consideration. Right off the bat, a lot of people bought properties from Evergrande before the company started building them, and they might lose the money they put in as deposits if it goes south.

Additionally, the company has an international supply chain, and it does business with many firms across the world – these include construction and design firms, suppliers, and whatnot – all of which face major risks of losing money if Evergrande defaults.

Third comes the impact on the country’s financial situation. Speaking on the matter was Mattie Bekink from the Economist Intelligence Unit (EIU), who outlined the above connections of Evergrande:

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The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms.

One of the main concerns is the so-called credit crunch. If the company defaults, its lenders (including financial institutions and banks) may be forced to lend less and increase rates, which would spell bad news for other firms. Some of them rely on debt to grow, and in some particular cases, they might even be unable to function without it.

Impact’s Already Clear

Evergrande’s stock has lost more than 80% in the past 6 months, and today alone, the company’s shares plummeted by more than 10%.

This has also caused a broader dip in the Hang Seng Index – an index tracking major Chinese companies, to decrease by 3.3% – its biggest loss since late in July. This makes it evident that the property fears are spreading beyond Evergrande.

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Moreover, global markets tumbled in pre-market trading hours. The S&P500 futures are down 1%, and so are DOW and NASDAQ futures.

What Happens to Bitcoin?

Bitcoin is a risk asset. In fact, its unconventional nature and sporadic market behavior, which is oftentimes nothing short of unpredictable, make it one of the riskiest assets. And while investors with increased risk appetite might seek exposure to it to maximize gains, it’s unlikely that BTC is what they’ll hold through turbulent times of a looming financial crisis.

Moreover, when there’s turmoil on the broader financial markets, Bitcoin has traditionally been quite shaky – a further argument in support of the above.

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Hence, it’s entirely possible that we will see the market continue being indecisive until the property fears coming from China are settled in one way or another.

But it’s also worth noting that this doesn’t just apply to Bitcoin but to other risk assets as well. They tend to be the first to liquidate when the economy is shaky, and the dollar is rising.

Of course, Bitcoin should be an uncorrelated asset because it is fundamentally different than traditional assets. However, this hasn’t been the case, largely due to big institutions stepping in and becoming a serious part of the market.

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Bitcoin Senator Rallies For Support Against Powell’s Renomination As Federal Reserve Chair, Here’s Why

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Popular Bitcoin Senator, Senator Cynthia Lummis is reportedly soliciting for the support of her fellow Republicans in her stance against Jay Powell after the latter got renominated to chair the Federal Reserve.

Bitcoin Senator Wary of Crypto-unfriendly Nominees

As reported by Decrypt who first broke the news, a source in Lummis’ office says her reasons border on her belief that there is an unlawful treatment of crypto-based institutions in her home state, Wyoming.

Meanwhile, the Bitcoin senator is not only against the nomination of Powell. The source still claims that Senator Lummis is also asking her Republican colleagues to help block Leal Brainard’s nomination as well. Brainard is another nominee of President Biden’s for the Fed positions.

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Lummis’ skepticism might be as a result of the Special Purpose Depository Institutions or SPDIs as they are otherwise called. They are a new type of crypto-based bank that Wyoming lawmakers granted a special operational license to, just last year.

Two crypto-based companies that received the license in 2020 include Kraken exchange and Avanti — the stablecoin issuer. However, the Federal Reserve’s decision to not approve their applications for central bank-issued accounts has placed a hold on their banking ambitions.

Speaking about the Federal Reserve’s delay in a Wall Street Journal feature article by Lummis on Wednesday, she says it is an intentional and unlawful obstruction. She added that the Fed’s reasons are ambiguous at best. According to the Bitcoin Senator, Lummis claimed that the Wyoming entities have met all requirements for being a bank under the Federal Reserve Act.

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Lummis insists that Powell and Brainard are only avoiding their legal obligations in their continued treatment of SPDIs and like many other U.S lawmakers, she wants to know why.

Could Lummis’ Pressure Affect Powell’s Confirmation?

As Lummis continues to apply even more pressure on her colleagues, the possible extent to which this pressure can truly go in affecting the confirmation process of both Powell and Brainard, remains to be seen.

But with the chair of the Senate Banking Committee, Sherrod Brown, reportedly holding a vote on the pair sometime this month, both of them could be confirmed.

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Also, there’s a possibility of a potential tight vote now that some progressive Democrats — most notably Elizabeth Warren — are saying they will not be voting for Powell.

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PlanB’s Floor Model First Miss: Bitcoin Price Closed Way Below $98K In November

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PlanB’s floor model was wrong about BTC’s November closing price. The stock-to-flow model, though, is still on track.

Bitcoin’s closing price for November below $60,000 meant that PlanB’s floor model, which was particularly accurate until now, was finally broken.

At the same time, though, the analyst confirmed that the more popular stock-to-flow model was still valid as BTC is on track towards $100,000.

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PlanB’s Floor Model Fails

PlanB is among the most popular analysts in the cryptocurrency space, predominantly known for the Bitcoin stock-to-flow model, which he published in early 2019. However, he also posted another model, which he referred to as the “worst-case scenario,” in July this year.

Also known as the floor model, it’s based on technical aspects, such as the 200-day moving average, and saw BTC closing August at $47,000, September at $43,000, and October at $63,000.

The first two months were spot on. BTC closed in October at $61,000, which was still very near to the model’s predicted price, and PlanB said it was “good enough” for him.

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However, November’s closing actual closing price of way below $60,000 was quite different from what the model envisioned – $98,000. As such, the analyst admitted that this was the model’s first miss after nailing the previous few months.

S2F on Track

As mentioned above, the floor model works separately from the stock-to-flow model, which sees the stock as the size of existing reserves (or stockpiles) and the flow as the annual supply of new bitcoins to the market.

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It’s actually even more bullish as the original version sees bitcoin tapping $100,000 by the end of the year. The upgraded stock-to-flow cross-asset model, which introduced different phases of bitcoin’s development, predicted a price tag of $288,000 until 2024.

Although bitcoin still struggles below $60,000 at the time of this writing, PlanB believes that the original S2F hasn’t been broken as the asset is on its way towards $100,000. If BTC is indeed to go into a six-digit price territory, it would have to increase its USD value by more than 66% in the next 30 days.

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CashApp Added Bitcoin Taproot Support, Here’s Why It Is Important

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CashApp now supports the updated version of Bitcoin

The widely known Cash App mobile payment service developed by Square, which is being used to transfer money with the usage of a mobile app, now fully supports the Bitcoin taproot update.

The mobile payments service is currently available in the U.S. and the U.K. but is still reporting 70 million annual transactions between users and generating $1.8 billion in gross profit.

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The taproot upgrade was highly anticipated by the Bitcoin network and the cryptocurrency community in general. Previously, the update went into effect on Nov. 14, 2021, at block 709,632.

Previously, the announcement appeared on the app’s website that has described numerous benefits that users will experience after the implementation of the update. One of the main advantages is increased privacy and reduced transaction fees.

The two-week period has been chosen to confirm the functionality of the updated version of the currency. As for now, the update has been activated for all customers. Taproot-enabled wallets are now available for both receiving and sending.

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