BTC/USD has dropped more than 16% since the beginning of the week, sinking from $ 47,500 to $ 40,000. Most altcoins faced even more significant losses. Aggressive sell-off in the cryptocurrency market resulted from the general weakening of market sentiment amid Evergrande (OTC:EGRNY) possible collapse.
We are talking about the situation with one of the largest Chinese real estate developers - China Evergrande Group, which found itself on the verge of default, crumbling under the weight of roughly $300 billion of debt (let's recall Lehman Brothers). Some investors are concerned that Evergrande's default could trigger a chain reaction when other companies also face financial difficulties and won't pay off their debts.
Fears that the world economy will find itself amid another global financial crisis, comparable to the crisis of 2008, forced traders to redirect their capital in favor of defensive assets such as gold and US Treasuries. It is worth noting that the potential Evergrande default could negatively affect the Tether stablecoin, which plays a vital role in the cryptocurrency ecosystem.
Earlier, {{|Tether}} Holdings Ltd. stated that about half of its assets are securities and commercial paper. Since the company's management chose not to disclose the details of the corporate investment portfolio, traders assumed that Evergrande could hold some of the Tether Holdings Ltd. reserves in its commercial paper. Thus, if China Evergrande Group cannot avoid default, it'll have a domino effect on China's property sector.
Tapering Fears Grip Crypto Industry
The expectations of an imminent monetary policy tightening in the United States are putting pressure on the crypto industry. Once the US regulator decides to start tapering its quantitative easing program, this could have long-term negative consequences for the US stock market, which remains one of the leading indicators of investors' risk appetite.
It is worth noting that the scenario where the Federal Reserve begins to slow its asset purchases gradually is quite a possibility and may well start before the end of this year. With that said, the recent BTC reaction to Evergrande's crisis suggests that panic-driven sell-off in the financial market may well repeat itself, leading to another investor exodus from digital currencies and shift to safer assets. For this reason, we recommend shorting BTC with a target of $ 30,000, where Bitcoin may find itself in the coming weeks.