The Evergrande CRISIS Explained! – How the Collapse will Impact the Stock Market, Crypto & Bitcoin!!
Out of the way lets get straight to what this video is about. So right here this is evergreens share price in hong kong dollars on the daily chart and im sure you can see the huge crash that evergrand stock has had. In fact, just from the beginning of this year to where we are right now, evergrens share price has crashed by more than 84 to the downside and lets just say it. Doesnt look like its coming back up anytime soon, because evergreen, as i just mentioned, is chinas. Second largest property developer and in any real estate company theres going to be some debt involved, obviously, but in evergrass situation, theres too much debt than what they can handle right now, evergrant has over 300 billion us dollars worth of liabilities, so theyre 300 billion us dollars Into debt and the problem for evergrand here is in the short term, they dont have enough liquidity available to service all of that debt, for example, just on thursday theres 83.5 million us dollars worth of interest that is coming due on some of their bonds, and so Right now, obviously theres no telling whether theyre going to pay that or not, but things are definitely not looking good and especially if they do miss that payment on thursday, and that is when evergreens is at risk of a default. If they cannot make this payment on thursday, because, as you can see here, theres a 30 day period before a missed payment is considered a default and for the beginners out there that dont know what a default is its.
Basically, if you cannot pay back all of your debt and it essentially results in the collapse of that company and all of that debt has to be written off by everyone else that has lended ever grants money. So why is evergreens in this situation? Well believe it or not, theres, actually some other companies out there that has just as much leverage as evergreens, meaning that there are other companies out there that have similar amounts of debts to assets and to start with one major factor that could have put evergreens towards This situation is a new set of policies created by china back in august 2020., so this new set of policies is called the three red lines and, first of all, straight off the bat annual growth in debt is capped at 15, which is already putting a restriction On chinese companies, but as you go down the list here, the more guidelines that companies fail to meet the more restricted they are on annual debt growth, and so the guidelines that companies need to now follow over in china is first of all, they need to have That liability to asset ratio less than 70. If they have it more than 70, then they breach that guideline just there and they go into this yellow range just here. The second one is net gearing ratio of less than 100. Once again. If they fail on those two, then they go into the orange range and then the third one is cash to short term debt ratio of more than one x.
And if they fail on all three, then they go into this red area here, which means they cannot grow their annual debt at all. So these extra restrictions actually put a strain on chinas real estate market, because the real estate market has been booming for quite a few years, and china wanted to press the brakes so that things dont get too out of hand. But that has potentially created a situation like what were in right now and combined with the fact that evergreen has made other investments, such as an electric vehicle company and a soccer club, and both of those investments. Havent really generated enough of a return to help with the massive pile of debt that evergrande is now in and as well. Even if evergrant does make this 83.5 million dollar payment on thursday in total evergreen still has another 669 million us dollars worth of coupon payments. Coming due through the end of this year and for the beginners out there that dont know what coupon payments are theyre, basically, the interest paid on bonds and evergreens simply does not have that much liquidity available in the short term. So the best case scenario here is perhaps the chinese government steps in and bails them out. But if thats the case theyre, essentially rewarding the reckless behavior of ever grants going further into debt. But if the chinese government does nothing that its extremely likely that evergreens could collapse and if that happens, that will have a very negative effect on not just the chinese markets, but honestly it could ripple to worldwide markets because, first of all, if evergreens goes down.
Obviously they have billions of dollars worth of real estate and also unfinished projects that are going to be sold off for cheap. So, first of all, having billions of dollars worth of real estate sold at a distressed price is going to severely impact the property market over. In china, and not to mention evergrand has over 120 000 employees, so theyre all going to end up with no job if evergreen goes under, and on top of all of that, probably the biggest thing is the fact that that 300 billion dollars worth of debt that Evergrant has will not get repaid to all of the other companies, investors and banks that have lent that money to evergreens. So this is where the flow on effect starts and by the way, the three biggest holders of evergrand dollar bonds are. The ashmore group, which is a huge company based over in the united kingdom and then, of course, black rock, which is a huge company based in the us and ubs, which is another massive company based over in switzerland. So already theres international companies that are going to lose out on a lot of money if all of that debt is not repaid and, of course, with companies taking a big hit like that. That can negatively affect their share price and were already seeing early signs of that over in the stock market. So this is the s p 500 index and, as you can see over the last couple weeks, weve already started the decline, but only just recently, things have started to drop a little bit faster and weve just broken below the 50 day exponential moving average, which has Historically, provided huge amounts of supports for the s p 500.
. Now there has been some previous times where the s p 500 has just briefly dropped below the 50 day exponential moving average and then comes straight back up. So obviously that is still a possibility, but with everything thats going on right now, it is honestly hard to be bullish on the traditional markets, but lets just wait and see if evergreens actually makes that 83.5 million dollar interest payment due on thursday, because if they do Then right now we could be looking a little bit better, but if they dont once again that could lead into a potential default on all of their debts within 30 days. And if that happens, thats when youre going to see a bigger pullback in the stock market and real estate, and so how does all of this actually affect crypto? Well, the stock market and crypto believe it or not, are pretty well correlated during times of uncertainty. So this is on the bitcoin to us dollar chart on the weekly time frame thats what the candlesticks are just here: thats the bitcoin price and then the orange line. Just here that is the s p 500 index on the weekly time frame. And this shows you the correlation between the two, especially during times of uncertainty, when everyone is panicking. As you can see here during 2015, the stock market was entering a little bit more of a bearish time, just as bitcoin was in a bearish time as well.
In the bottom of that bear market, and then, of course, when the stock market started breaking back above its previous all time highs and entering into another bullish time in the market. That is when bitcoin entered a huge bullish time in the market, and then the stock market entered almost a euphoric stage just there in the beginning of 2018, and we started seeing some more bearish signs in the stock market, and that is when the 2018 bear market Came around for bitcoin and that final capitulation at the end of the 2018 bear market actually came after a capitulation that happened in the stock market and then, of course, the famous march 2020 capitulation in almost every market in a single day. Bitcoin crashed 50 to the downside and overall, over those three weeks, bitcoin crashed around 60 percent to the downside, and the stock market saw a similar massive crash to the downside and also notes that during times of bullishness in the stock market, we usually have extremely bullish Times in bitcoin, so obviously theres not a perfect correlation between the stock market and bitcoin, but just generally speaking, when theres a lot of panic happening in the stock market that usually transfers over to bitcoin and the entire crypto market. And why does that actually happen? Well, theres, two major reasons. The first reason is the fact that both of these two are denominated in u.s dollars. So, of course, companies on the u.
s stock market are valued in us dollars, just how bitcoin most commonly is valued in u.s dollars. So if we see a major sell off in the stock market, that usually means people are selling into cash, which is, of course strengthening the us dollar and when we see a rising us dollar, that only means one thing for bitcoin and of course, that is bearish. For bitcoin, because when you have bitcoin varied against a rising dollar, even if bitcoin basically stays the same, because the dollar is rising, it looks as if bitcoin is falling against the dollar, and that leads into a further panic in bitcoin, and the second reason why the Stock market and bitcoin are correlated during certain times like this is because investors obviously take a loss when the stock market dumps and so to cover that loss. They might need to sell other investments, such as bitcoin, for example, and usually during times of uncertainty, when things are heading to the downside, the majority of investors out there, especially traditional investors that are used to the stock market. They are quicker to sell off their higher risk assets, so theyre more volatile assets such as bitcoin, for example, and so that is where all of this comes into play right now and of course, if the evergreen situation gets worse, that will not be a good thing For the traditional markets and for the crypto markets, but keep in mind no matter how bad things get, this is going to be a huge opportunity if you stay active in these markets because, as you can see here previously, when weve seen dumps in the stock market And dumps into crypto they are the best times to begin accumulating bitcoin and the top cryptos that youve been doing research into, and also the top stocks that youve been doing research into so keep all of that in mind as well.
We could have some bearish times ahead, but it is temporary and it will give you an amazing opportunity to potentially get in at some cheaper prices before the inevitable bullish price action that happens later on now that bullish price action that comes later on that could be In a month from now, it could be in a year from now, obviously its very hard to tell from the situation right now because were still in the early stages of it all, but just definitely keep that in mind as well. This is all going to pass and theres going to be bullish times ahead later on in the long term. So i myself, i am going to be staying active in these markets, its very important to do that. If you want to take advantage of these amazing opportunities that are coming soon and if you enjoyed this video or got something valuable out of this, video make sure to leave a like down below and if youre new to the channel make sure to subscribe to this Channel with notifications turned on for more update videos, just like this one, i normally post bitcoin and ethereum update videos every single day, but if something of this scale is happening, i will cover it on the channel, especially if you guys are suggesting it in the comment Section down below, like you have been so if a bunch of you are suggesting the same thing in the comment section down below thats when ill be sure to make a video on it.
So if you have any other suggestions, let me know in the comment section and of course, if this ever grand situation gets worse, i will continue to cover it here on the channel. So definitely make sure you spend a couple seconds out of your day to click that subscribe. Button down below, with notifications turned on once again, so that youre not missing out on all of these future updates, and as always, i really do appreciate all of your support. In the channel at the moment, i cant thank you guys enough, but anyway thats his bet and have to say for this video.