Crypto Weekly Outlook: September 20, 2021
The global crypto market has started off the week with a significant drop. The total market cap has fallen below $2T to $1.95T as of this writing, with the vast majority of cryptocurrencies experiencing sizable losses. The week should continue to be volatile with Federal Reserve tapering news on the agenda as well as the major Evergrande Group debt crisis unfolding.
Before the weekend, analysts were questioning whether Evergrande Group's problems could spread contagion to the crypto market and today's massive drop shows the answer to be a resounding YES. Markets all over the world have dropped due to the contagion fears with the Hong Kong Hang Seng index losing almost 7%. According to some analysts, Evergrande has debts amounting to almost $2T! The amount of debt that Evergrande is expected to default on is in the hundreds of billions of dollars, possibly greater. The second order effects of the collapse of China's second largest real estate firm would be immense. In times of such uncertainty, counterparty risk becomes a major factor, especially when there's so much leverage being used. Firms could become fearful and extra liquidity is desired. When this occurs, risk assets (such as cryptocurrencies) are the first assets to be sold. The potential for the Evergrande debt crisis to spiral out of control should not be underestimated.
Bitcoin, as of this writing, has fallen to around $44K, although it had fallen lower earlier in the day to $42,760. The $46K support has been taken out and the $42,800 level is now the major support area. If the price falls below this, then $37K-$38K could be next. The BTC sell-off was also sparked by a massive $4B liquidation, with $312M worth of Bitcoin sold in a single hour. Not helping the sentiment is the news that various on-chain data providers noticed multiple spikes of supply on exchanges (such as Binance), with the likely intent of being sold. Even with the short term bearish sentiment, on-chain metrics continue to skew bearish as longer term holders and miners do not appear to be selling. The coins being sold seem to be limited to coins held for under 6 months. Holders of coins older than a year appear to be taking advantage of the dip. Moreover, according to Glassnode, last week miners increased their holdings and are now in accumulation mode, a bullish sign.