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Opinion: Evergrande and Crypto Where is Bitcoin Heading

Trading View | Michael Wang Opinion | Sep 28, 2021

Evergrande crisis explained - Opinion:  Evergrande and Crypto Where is Bitcoin Heading

Disclaimer: This is not investment advice. This is for educational and entertainment purposes only. I am not responsible for the profits or loss generated from your investments. Trade and invest at your own risk.

About Tether
- Tether offers $USDT, a stablecoin that is convertable for 1 USD.
- Essentially, what it does is not so different from what banks used to do, and continue to do today.
- During the gold standard, when you took $500 to the bank, they'd give you an ounce of gold .
- Tether guarantees that they'll provide 1 USD per 1 USDT
- But, some say that Tether is faced with a bank-run like situation, looking at its reserves.
- According to their March 2021 Reserves update, commercial paper accounts for 65% of Tether's cash reserves.
- For those of you who don't know, commercial paper, or CP, is a way to finance extremely short term loans at a very cheap rate.
- Tether did not disclose whose CPs they were, in order to protect their partner's privacy.

Tether's Commercial Paper
- Back in July this year, Tether’s CTO and general counsel had an interview with CNBC, and made a few important points.
- They said that they have about $30B in AA rated International Commercial Paper, and these were rated AA by S&P and Fitch.
- The point that some people are making is that Tether’s commercial paper might actually be Evergrande’s commercial paper.
- This may seem like a conspiracy theory, but there are certain points that line up.

See:  Bitcoin Tumbles on Evergrande Bond Obligation Struggles

Reason #1
- First, Tether currently has $30B in commercial papers, and that’s an insane amount of money.
- Reuters reported that Shengjing Bank, the bank affiliated with Evergrande, is under investigation for providing illegal loans up to $20B.
- Considering that even a more renowned company like JP Morgan can’t write $20B loans, there is plausible reason to doubt that the capital may have come from Tether.
- So taking into consideration the size of the loan, some say that it’s highly likely that the capital flowed into Chinese real estate companies.

Reason #2
- Secondly, even after Bitcoin peaked in mid April, Tether continued to print more USDT. To be precise, they printed $15B between mid April and early June.
- In case you don’t know what bitcoin has to do with this, there have been claims that Tether has been arbitrarily printing USDT.
- This USDT would be used to manipulate the price of Bitcoin , and the overall cryptocurrency market in general.
- While Tether has been printing money like crazy, and as soon as Evergrande CPs defaulted on June 7, they stopped printing USDT.
- Now this is a chicken or egg question where we don’t know if Evergrande’s liquidity problem caused Tether’s collateral to impair, or whether Tether’s cutoff caused the liquidity issues at Evergrande, but something sure smells fishy.

See:  Tether banned on Canada’s first 2 licensed digital currency exchanges

Conclusion
So many answers still remain unanswered. Where does Tether put its billions? Who issues $30B in AA International Commercial paper, willing to pay anything? Why did Tether stop printing money as soon as Evergrande’s liquidity died? As I've said in the previous post, the best thing we can do as investors is to prepare for all probable situations. In my personal opinion, the Chinese government seems willing to indirectly solve the issue by injecting capital via open market operations, so it's more likely that this situation will be settled at one point, as opposed to leading to the entire global financial market collapsing.

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The Globe and Mail | and | Sep 28, 2021

Beijing is prodding government-owned firms and state-backed property developers such as China Vanke Co Ltd to purchase some of embattled China Evergrande Group’s assets, people with knowledge of the matter said.

Evergrande, saddled with $305-billion in liabilities, is teetering on the brink of collapse. But the central government is unlikely to intervene directly to resolve Evergrande’s crisis in the form of a bailout, according to six people, including four in government and regulatory bodies.

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Authorities are hoping, however, that asset purchases will ward off or at least mitigate any social unrest that could occur if Evergrande were to suffer a messy collapse, they said, declining to be identified due to the sensitivity of the matter.

A handful of government-owned enterprises have already done due diligence on assets in the southern Chinese city Guangzhou, said one person.

In one emblematic example, Guangzhou City Construction Investment Group is close to acquiring Evergrande’s Guangzhou FC Soccer stadium and surrounding residential projects, according to the person, who has direct knowledge of the matter.

Set to cost around 12 billion yuan ($1.9-billion), the stadium has been designed to seat more than 100,000, making it the world’s largest venue built for soccer by capacity.

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Potential buyers of Evergrande’s core assets in Guangzhou have been “arranged” with “both political and commercial considerations” in mind, the person said, adding that authorities don’t want to see just a few companies bidding for the same assets.

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