Since August, the biggest cryptocurrency in the world, Bitcoin embarked on an upward movement to recover from the ruins of May, June, and July where it struggled in the lows of $30,000. On August 22, Bitcoin closed the trading session trading above $50,000, the first time it had surpassed that mark in three months. Since then, the digital asset has been trading somewhat below $50,000 but upwards of $46,000. However, this changed in the premarket trading session this Wednesday morning.
Today, Wednesday, September 22, 2021, Bitcoin and other major cryptocurrencies like Ethereum, Litecoin, and Dogecoin among others were down on in what has since been termed as a “flash crash” with over $200 billion wiped out of the crypto market.
By press time, Bitcoin was trading at $42,070, representing a drop of 3.17% since market open, and this is the lowest the digital asset has traded since August. Ethereum has also fallen 4.99% to trade at $2,921.
Naeem Aslam, the Chief Market Analyst at online forex trading broker AvaTrade attributed this flash crash to sentiment related to riskier assets that took a beating in the previous days.
“The price action is currently testing the Ichimoku cloud technical pattern which supports the asset near $39,900 so investors are have put their focus on these support levels for signs of further price declines,” Aslam said, according to Yahoo Finance.
Developed and published in the late 1960s by Goichi Hosoda, a Japanese journalist, the Ichimoku Cloud is a collection of technical indicators that show support and resistance levels, momentum and trend direction which are used to improve the accuracy of forecast price moves.
Cryptocurrencies are getting more votes of confidence globally and financial markets are integrating them more in their activities. This is good news to crypto investors but it has a downside in that a sell-off in financial markets is poised to affect the crypto market as well.
A few days ago, China real estate giant Evergrande Group (HKG: 3333) sent shockwaves across global stock markets when it started to repay investors in its wealth management business with property instead of cash. This is because the crisis-hit company is currently struggling to find the cash to meet its liabilities, and as its finances stand, it is currently the most indebted real estate developer in the world.
Founded by businessman Hui Ka Yan in 1996 in Guangzhou, China, Evergrande is due to make interest payments of $84 million on its bonds tomorrow, Thursday, September 23, 2021. The company currently owns more than 1,300 projects in more than 280 cities across China but it has expanded into other business lines like wealth management, making electric vehicles (EVs), football investment, as well as food and drink manufacturing. The company’s wholly-owned Guangzhou FC is one of the biggest football teams in China.
Speaking about Evergrande’s performance, Mati Greenspan, Chief Executive Officer (CEO) of Quantum Economics applauded the company’s performance since the great financial crisis, saying “it has done extremely well to leverage investment opportunities in a cash-intensive industry.”
However, Greenspan noted that all that leverage is becoming tighter for the company due to the current difficult financial conditions.
Evergrande stock has been on a downward spiral all year, and data from Yahoo Finance shows that the stock has plummeted as much as 83.95% year to date, currently trading at HKD2.27 (about $0.3198). It is only a few days that its downfall has got global attention. The company has a market capitalisation of HKD30.08 (about $4.22b).
As Evergrande’s woes spread across the world and shake global markets which have indirectly affected the crypto market as well, institutional investors in digital assets seem unfazed and are holding tight onto their assets as others are even buying more for their portfolio.
In El Salvador, the government took advantage of the bitcoin drop and “bought the dip” over the weekend after increasing its bitcoin holdings by 150 bitcoins. This is worth $6.3 billion at current exchange rates. It should be noted that El Salvador started accepting bitcoin as legal tender earlier this month, although the U.S. dollar remains the country’s primary currency.
Banks, institutional investors want to dive more into cryptocurrency
El Salvador aside, bitcoin’s flash crash does not seem to be a factor to other investors who are looking at investing even more in the prized, but highly volatile digital asset. One of these is Van Eck Associates Corporation, a mutual fund and Exchange-Traded Fund (ETF) manager. VanEck launched a bitcoin tracker fund early this week and filed to launch a strategy fund that will invest in bitcoin futures as well as directly investing in bitcoin.
Across the world, government central banks which regulate the banking sector in their respective countries have discouraged their banks from entering the crypto space that involves activities like investing, buying, selling, exchanging, and accepting cryptocurrencies as a mode of payment for goods and services. The central banks claim that the decentralised nature of the blockchain technology onto which cryptocurrencies are built makes it hard to be regulated, and its volatility makes it even riskier to be added to the financial institutions’ balance sheets.
Now, U.S. banks have written to an international body of regulators to give them the green light to invest more in digital assets. Yesterday, Tuesday, September 21, 2021, an advocacy group called Financial Services Forum (FSF) which represents the eight largest U.S.-based financial institutions (Bank of America, BNY Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street, and Wells Fargo) wrote to the Bank of International Settlements (BIS) regarding its proposal for a global framework for bank exposure to crypto-assets that they called “overly conservative and simplistic.”
“In effect, the proposals would preclude bank involvement in crypto-asset markets,” the advocacy group wrote to the body.
The Basel-based BIS committee published a proposed framework in June this year that delineates digital assets like stablecoins from more volatile and riskier cryptocurrencies like bitcoin, Ethereum, among others. BIS proposes that different crypto-assets should be subjected to different regulations depending on their stability, and this would mean the regulations would be stricter for riskier crypto assets.
The FSF urged the BIS to instead formulate a lighter framework that would make the financial institutions deepen their involvement in the crypto space. The BIS is the world’s primary standard-setter for bank regulatory rules.