eToro: Evergrande causes rollercoaster week for crypto markets

eToro: Evergrande causes rollercoaster week for crypto markets

27 september 2021

Bitcoin
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Simon Peters, Cryptoasset Analyst at multi-asset investment platform eToro, comments on the uncertain impact of the Evergrande-crisis on stablecoins:

“Early in the week, news began to emerge of the Evergrande crisis which sent contagion spiralling through all markets. Cryptoassets felt the effects as the broad-base selloff took hold on Monday.

Evergrande has massive debt exposure – over $300 billion – and has failed to make payments on time to its creditors. The implications for wider crypto markets are not direct, but with debt fears looming, cryptoassets such as Tether could be affected.

Stablecoins like Tether are pegged to fiat currencies such as the US Dollar. But to maintain the peg they require holdings to match the value of the cryptoasset. Many can’t hold large amounts of cash and instead use commercial paper – a form of short-term debt – to account for the value.

The issue here is that, with Evergrande creating 2008-style contagion risk for debt markets, stablecoins could run into trouble were the commercial paper they hold to lose value. Unfortunately, as such a crisis is unprecedented, it remains to be seen what will happen next.”

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