Bitcoin and Ethereum Prices Tumble 5% After Evergrande, Kaisa Default in China
Just when things were starting to look up for investors, crypto markets headed back down faster than Chinese home sales.
The price of and both fell more than 5% in 24 hours as the total cryptocurrency market capitalization lopped off nearly 6% of its value, according to data from CoinGecko. Stock prices, too, were trending lower after Chinese real estate developers Evergrande and Kaisa were unable to make scheduled U.S. dollar bond payments.
Bitcoin is having a dreary December. The top cryptocurrency asset by market capitalization began the month above the $57,000 mark but is now languishing below $48,000. It’s the same story across much of cryptocurrency. Ethereum has travelled from a perch above $4,700 on December 1 to below $4,200 today. The total crypto market cap has shrunk by $250 billion since the start of the month.
The bulk of the losses occurred on Friday, December 3, when Bitcoin’s price declined 17% in mere hours. Since then it had clawed back some gains before dipping again today.
That selloff had multiple causes: investors in derivatives markets had their positions liquidated, creating a cascading effect of more liquidations. Yet those liquidations started because cryptocurrency was broadly moving in tandem with equities markets, as it has increasingly done this year; stocks were down on Omicron worries and Federal Reserve policy changes, so Bitcoin followed suit.
That’s somewhat the case again today. Though the Dow Jones Industrial Average—an index of shares in 30 U.S. corporations—was flat, the Nasdaq dropped more than 1% and the S&P 500 began reversing gains from earlier in the week.
U.S. markets could be reacting to troubles affecting two of the largest property developers in China, unable to cope with declining home sales and government restrictions on loans. Kaisa defaulted on a $400 million bond, while China Evergrande Group missed a final interest payment deadline earlier this week. Given the overlap between major world economies, look hard enough and you might see the beginnings of another financial crisis.
While Bitcoin has positioned itself as a hedge against inflation and a safe harbor asset, the injection of institutional investors into cryptocurrency has made those markets less immune to movements in other markets.