- >News
- >Did Evergrande Actually Affect Bitcoin? Is the Bull Run on for Q4?
Did Evergrande Actually Affect Bitcoin? Is the Bull Run on for Q4?
As we head into Q4 of 2021, Evergrande and Bitcoin are amassing the attention of investors. The S&P 500 has continued to rally on the back of an inflating money supply since the onset of the pandemic in March of last year. The US Federal Reserve is discussing plans to taper their spending; to which the markets have historically been sensitive. What complexity is Evergrande adding to the overall market, and what is going on with Bitcoin amongst all this?
The overall impact of Evergrande is still unclear, but its effects will likely last well into 2022. In the short-term, Bitcoin is not impervious to the swings of equities and is currently not without its own bearish indicators. However, sentiment and on-chain data are presenting a powerful bull argument for Bitcoin. Long-term, Bitcoin’s future looks clear, but what can we expect by the year’s end?
How Will the Evergrange Debacle Unfold?
The potential impact that Evergrande may have on China looks significant. Here is the gist of what’s happening. The real estate market represents around 20% of the Chinese economy, to which Evergrande is sparking an adjustment. China is highly leveraged, especially for an emerging economy, and especially in real estate. In order to meet growing demands, Evergrande takes on debt to finance their property developments, and investors then take on debt to purchase properties from Evergrande. Demand for real estate is often so high in China that investors take on debt to purchase properties before construction even starts.
Since Evergrande can no longer service their debt payments, they will have to curtail their development projects. For the investors, they face mortgage payments with no home to show for it. Essentially, Evergrande has triggered a debt default domino effect in China’s inflated real estate market. But will the dominoes tumble into North America?
Evergrande’s initial announcement garnered extensive media coverage. North American markets were spooked. The FED is also set to decrease its quantitative easing but seems to have been delayed at least until November. This cooled the markets, but what is still to come? $300 billion USD is a lot of debt for a $35 billion USD company to pay off. Also, most of Evergrande’s debts are within China. If the dominoes do reach North America, it will be a delayed effect.
What we do know is that the global economy is tied to what happens in China. As the fallout from China’s real estate debt crisis plays out, we can be sure to see more volatility introduced to global markets. That means equities, and North American equities are no exception.
A Wild Year for Bitcoin
That which impacts equities, exposes emotional volatility to Bitcoin. The bitcoin market is already a volatile asset, but we have seen a reversal to the downside for bitcoin in the last few weeks. For those of us tuned into legacy finance, should we fear bitcoin could get caught in the mess?
It goes without saying that bitcoin is going to be around for the future. If you wish, HODL for the long-term and forget I ever brought up Evergrande. But the scenario for bitcoin for the rest of 2021 is an interesting one. Bitcoin has had quite the year. It saw the beginning of the bull market, reached all time highs, and was banned by China multiple times. Elon Musk even did his part to take bitcoin for a ride, and the ride isn’t over yet.
If you have a look at bitcoin’s charts, you’ll see there is a worrying similarity among historical highs and the latest ones. It’s worrisome, because YOLO investors (and especially leveraged investors) could lose their money. Basically, it looks like a bull trap. If you buy now in view of bitcoin’s long-term price potential, you’re still getting in at a discount. But there’s a good chance you’ll have to take some pain. Short-term traders beware.
The other side of the (bit)coin tells a very different story. This is what makes Q4 of this year so interesting. On-chain data has never looked more bullish for bitcoin. The hash rate for bitcoin mining is climbing sharply following the migration from China. Bitcoin and ether (ETH) outflows from exchanges continue to fall (meaning investors are not selling). Institutions continue to accumulate bitcoin, and investors are anticipating a bitcoin ETF to be released by year-end. It’s looking like on-chain data is predicting a bear trap to combat the bull trap.
Bull Trap vs. Bear Trap
The charts and on-chain data are presenting a conflicted story for bitcoin as we approach 2022. Chart analysis is calling for a dip, and on-chain indicators expect a ramp-up to happen any day now. Evergrande continues to loom over our heads, and so does an inflated economy. It’s a battle of the bulls and the bears as far as Q4 2021 is concerned.
It is important to re-emphasize the impact of equities and the Fed’s spending on bitcoin’s immediate future. The current state of equities is dependent on the continued liquidity of the Fed’s quantitative easing. If the Fed announces tapering ahead of expectations, equities could see exaggerated corrections. Evergrande is destabilizing the predicament further. Inevitably, bitcoin will have to weather the storm as the market is weaned from the Fed. I also wonder the degree to which bitcoin needs to be weaned, too. That’s one point for the bears.
Tread Lightly and Buy the Dips
As stated earlier, bitcoin will be tied to the emotional volatility of equities. Thankfully, bitcoin would only be tied temporarily. And ultimately, bitcoin is serving as a hedge against the drama of legacy finance and monetary policy.
It is looking wise to tread carefully for the remainder of 2021. It also seems like it will be very entertaining to watch this year reach its end. Bitcoin looks ready to move, but in which direction is anyone’s guess. Not much has changed for bitcoin; it remains a relatively non-correlated asset with asymmetric upside over the long-term. For Evergrande, Bitcoin, and Q4 of 2021, my only plan is to enjoy the show.
