1/31

Evergande and other Chinese developers stocks dropping off a cliff in the HK morning session today.

Here is what you need to know about why Chinese Real Estate may impact crypto and even US markets.
2/31

Evergande ($3333.HK) is a major Chinese real estate developer, who through leveraged properties and issuing US denominated junk bonds, built up a real estate empire making it the second biggest in the country.
3/31

Assets and equity boomed over the past decade, but net income struggled. The reason is debated, but it seems they were over leveraging properties that were getting very little actual revenue to grow their empire.
4/31

This worked, right up until the pandemic really began to hurt the few commercial and tourism properties that were actually driving revenue for them.

It's estimated that they've now managed to rack up more than $300B USD in debt.
5/31

To put that in perspective $300B USD is the entire GDP of countries like Ireland, Denmark, Hong Kong or Portugal.

And that is just the *DEBT* that Evergrande has.
6/31

Currently rumors are swirling that Evergrande may not even have enough remaining capital to service the interest payments on their loans nevermind paying down their principals.
7/31

Now, the real estate developer claims they are going to liquidate property to get 'operations back on track'

But, those of us in the crypto market understands how liquidations work.
8/31

If you are a liquidating because your collateral asset (real estate property) has sunk in value, and you have to sell that asset to pay back, then every time you sell it, the asset drops further.
9/31

Evergrande is so large they will be in a race to the bottom as they'll be selling properties which will lower the average price of properties in the region, thus lowering their asset value and entering into a spiral.
10/31

Evergrande currently owns a whopping 2% of all Chinese real estate and so this has lead Chinese issued bonds from nearly all real estate developers to sink
11/31

But Evergrande itself has been diving off a cliff all year and has reached a critical point
12/31

Now creditors are unwilling to accept their bonds and demanding payments made and aggressive restructuring options are being reviewed.
13/31

So why should you care?

On September 15, 2008, Lehman Brothers collapsed dissolving $600B in US assets leading us to the worst market crash since the great depression.

$600B in assets.
14/31

Right now, Evergrande has $200B~ in assets, and $300B in unserviced debt.

$500B total.

So its entirely on the same level as the assets that Lehman Brothers had.
15/31

But, Lehman Brothers was a US bank broadly diversified across many industries.

Evergrande is not.

Evergrande is in one industry and only one industry.

And its debt is held by banks across China, the US, Canada, UK, Australia and others.
16/31

This also comes at a time when markets have been on an artificial, inflation driven, quantitative easing fueled run up like no other.

So when the hammer does drop, it will drop hard.
17/31

But, this will not only cause defaults on bonds, but it will mean billions of dollars unpaid to Chinese contractors and goods suppliers, and it will mean the largest ever bulk real estate liquidation ever if Evergrande goes under.
18/31

That real estate collapse would mean the asset sheets of other real estate developers, banks and mortgage companies in China would all crumble.

Remember the big empty houses in the US in 2008? That times 100x.
19/31

Then we have to remember that China owns 15% of all global debt, so what happens when they have an internal crisis?

They are likely to start aggressively pursuing some of that external debt.
20/31

Which much of is likely with the same overseas banks and funds that own Evergrande bonds in the first lace.
21/31

Now, there is a chance that the CCP step in and find a way to bail out or unwind Evergrande.

With China's internal policies, it seems quite likely, although it will still likely be a pennies on the dollar bail out.
22/31

But, if they don't then market conditions are primed for a god damn meltdown.

We're sitting on a powder keg of weak economic involvement and yet all time high stocks, huge inflation and disconnected markets.
23/31

The question of a large correction is not a matter of if, it is a matter of when, and how bad.

That correction could be soon, it could be years from now, but it will happen.
24/31

The longer it takes the worse it gets, but there are unique events that could make it far, far worse and the collapse of Evergrande is certainly one of them.
25/31

These shockwaves would be felt in markets around the world, including crypto.

While we can hope that crypto one day becomes a flight from the tradfi markets, right now its sufficiently intertwined to its movements.
26/31

Plus, there is the stark reality that this will have a huge impact on the commercial paper markets.

Regardless of what commercial paper you hold, bonds and commercial paper would take a hit and some issuers may even fold.
27/31

Currently both Tether and Circle hold commercial paper, and while I think it unlikely that either would have large swaths of Evergrande bonds, the whole market will reel a bit.
28/31

For what its worth, I do think both of those will still have more than enough wiggle room to prevent any actual meltdown, but if we have a meltdown that gets really bad, they certainly could get a bit off peg.
29/31

If either Tether or USDC did meltdown in a global collapse though, it'd actually be bullish for crypto, as if you couldn't use them to cash out, people would just start bulk converting them into BTC/ETH regardless of price.
30/31

Either way Evergrande is a HUGE story that most Western media is entirely oblivious too.

I hope they get to stay that way and never have a reason to learn their name.

But there is a chance that we're currently staring down the barrel of the next financial meltdown.
31/31

It all comes down to what the Chinese government will do, and if the Chinese real estate market actually has enough demand to keep these assets a float.

But it's damn dicey.
PS - no I dont think this has anything to do with large onchain BTC transactions, nor do I think the 'Tether Truther' claims on this are accurate.

It's also not financial advice and it should not be considered a sure thing.
Large defaults happen and sometimes the world shrugs them off, or sometimes (especially in a country where the government will just take something over) a bail out happens with minimal effect.
But its a good lesson on keeping your eyes peeled, as we were on a tipping point and most in the West had no idea how bad this situation was looking or how it could impact them if it did go really sour.

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More from @adamscochran

14 Sep
1/

Tuning in late to the banking committee hearing but will dump anything interesting here.
2/

Sen Warner specifically notes that he has *never* seen a community so well organized and in strong communication as the crypto community.
3/

Gensler suggested that crypto is a problem for subverting AML laws and references some matter of intelligence debriefings that aren't public.

Seems a stretch.
Read 14 tweets
14 Sep
1/24

One thing really stands out about @GaryGensler's written testimony that he submitted before his banking committee hearing later today.

His continued use of the phrase: "stable value coins"

Why is that relevant?
2/24

Gensler is well informed of the industry and likely knows the jargon we use around 'stablecoins' choosing to repetitively name them something else signals either:

1) He is trying to frame a difference between name expectation and reality.
3/24

2) He is trying to make stablecoins seem closer to something else that he already has clear jurisdiction and guidance on.

or

3) He is trying to widen the definition to catch more things under existing regulation.
Read 24 tweets
14 Sep
1/9

Part of the problem Evergrande is in their balance sheet.

They've listed properties *under development* as an asset and not a liability.

That means empty, unfinished or unrented buildings were used to help them secure loans.
2/9

These buildings could range from completed and operating, nearly complete but empty, right up to being only land or concrete shells of a building.

Using this they became extremely overleveraged.
3/9

The whole predicament kicked off when their subsidiaries in electric vehicles and financial products failed to meet payment obligations, which lead to questions about cash flow in the company.
Read 9 tweets
14 Sep
1/4

Chinese commodities like coal, nickel and aluminum starting to show weakness in the afternoon session as well.

2/4

Meanwhile the Shanghai Composite Index at a moderate day showing a loss of momentum compared to its long run up
3/4

The composite index has been on a tear up since 2019 and just retouched its 2020 highs despite concerns with Evergrande, commodities and inflation, leaving it well off all moving average points
Read 4 tweets
13 Sep
1/24

Gensler's approach here makes it feel like the SEC still thinks its 1934 when the Securities Act was passed and that the US is the only country that matters in a digital era.
2/24

Look, I'll echo again, I *strongly* support investor protections. The *GOAL* of the SEC is noble, but outdated frameworks like the Howey test and accredited investor status do not take into account the realities of today, nor the technologies they hope to govern.
3/24

Yes, the SEC has the responsibility to protect American investors, and that is exactly what they should be doing.

But protection isn't a single problem.
Read 25 tweets
13 Sep
1/13

First off, I think $CVX is killing it.

But, here they just changed the game in setting up reward gauges with markets that aren't official curve gauges.

Here's why this is so huge:
2/13

Curve is a great and important tech in this space.

I think that some of the drama in the ecosystem leaves some to be desired, but its undeniably a critical component of DeFi and I have to give them props for that.
3/13

At the same time, the criteria and voting games to become a gauge are actually a decent sized hurdle for most projects, especially to get enough votes to have rewards at any decent volume.
Read 14 tweets

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