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Is Evergrande Defaulting? Is This The Reason For China’s War Against Bitcoin?

The biggest property developer in China, Evergrande, seems to be on the verge of collapse. They apparently owe $300B. Is bankruptcy on the table? There’s a better question, though. Is Evergrande the only company in the sector with these kinds of debts? Or is Evergrande just a symptom of a widespread disease? Also, how does this relate to Bitcoin? Do we present a valid case in the following article? Is this “China’s Lehman moment,” as the pseudonymous Bitcoin analyst suggests?

Related Reading | New To Bitcoin? Learn To Trade Crypto With The NewsBTC Trading Course

What we know for sure is that “China’s major banks have been notified by the housing authority that Evergrande Group won’t be able to pay loan interest due Sept. 20,“ according to Reuters. Plan B’s comment sets the tone, and the video shows the intensity of the situation:

China's Lehman moment. The money printing will be massive, I repeat MASSIVE! This is good for #bitcoin https://t.co/lAdSMhnk3L

— PlanB (@100trillionUSD) September 15, 2021

Check yesterday’s date. Well, on September 15th, 2008, Lehman Brothers filed for bankruptcy. Let’s quote Investopedia for a quick recapitulation.

“At the time of its collapse, Lehman was the fourth-largest investment bank in the United States with 25,000 employees worldwide. It had $639 billion in assets and $613 billion in liabilities. The bank became a symbol of the excesses of the 2007-08 Financial Crisis, engulfed by the subprime meltdown that swept through financial markets and cost an estimated $10 trillion in lost economic output.”

Is China living through a similar situation right this minute?

How Did China Evergrande Get Here?

A few days ago, on September 13th, the South China Morning Post seemed cautiously optimistic about the situation. They explained the root of the issue:  

“Reports about missed payments to contractors, attempts to reschedule payments on wealth management products, and failure to sell assets have prompted Chinese regulators and the central bank to intervene to prevent a shock to the financial system.”

At the time, the big news was that they hired “Houlihan Lokey and Hong Kong-based investment bank Admiralty Harbour Capital to assess its capital structure, evaluate the liquidity and explore ways to ease its current liquidity crunch.” And you know what that meant:

“Hiring such financial advisers means Evergrande has come to a serious stage of listing what it owns, what it owes and what are the best plans” to extricate itself, said Lung Siu-fung, an analyst with CCB International. 

The writing was on the wall.

Evergrande price chart on HKEX | Source: 3333 on TradingView.com
Where Are We Now? Is China Really In Trouble?

Apparently, China Evergrande was caught in a loop. The company was pre-selling apartments and using that money to fund other projects, in which they also pre-sold the apartments and the cycle started again. Evergrande bonds are suspended, and there’s a chance they won’t be active ever again. They might be worthless. The stock is near its all-time low, it has lost nearly 80% of its value this year.

Completing the story, CNBC informs:

“The company warned investors twice in as many weeks that it could default. On Tuesday, Evergrande said it’s at risk of a cross default, which means such risks could spill into other related sectors.

Evergrande said Tuesday its property sales would continue to deteriorate significantly this month, adding to its severe cash flow problems.”

Is there a possibility that Evergrande’s problems are the symptom of a widespread disease? That’s the $1M question. Is China’s real state sector really in trouble? For that answer, we have to go to ZeroHedge’s report:

“Country Garden, the nation’s largest developer by sales, plunged 16% in the past two days, while Gemdale slumped 12% as a  gauge of property shares in Shanghai tumbled almost 5% in the period, with valuations firmly below book value. Following the news, Guangzhou R&F Properties drops 10.8% to the lowest since Dec. 2008 while Greentown China -9.1%. At this point, one can safely call it a crisis.”

How Does Evergrande Relate To Bitcoin?

China’s Bitcoin policy doesn’t make sense. Regulating themselves out of the leadership position in the most important industry of our times is beyond comprehension. There has to be something else going on. We at NewsBTC have been on the case. We explored the Digital Yuan CBDC angle. We looked at ads selling small hydropower stations. We discovered China’s dominance over the Bitcoin hashrate was waning before the ban. And we detailed the so-called new “China Model.” 

The guaranteed outcome of fractional reserve banking: Impairment of promises. It's just a matter of when and at what magnitude. The impairment of credit will cascade to other balance sheets unless central planners debase the currency via QE, UBI, and/or debt forgiveness. BRRRRR

— Preston Pysh (@PrestonPysh) September 15, 2021

Under Plan B’s original tweet, two comments attract attention. Investor and podcaster Preston Pysh feels that the situation is “The guaranteed outcome of fractional reserve banking: Impairment of promises. It’s just a matter of when and at what magnitude.” And the person behind Documenting Bitcoin goes conspiratorial and says, “They knew this was coming. Perhaps this is why they “banned” bitcoin.” That, as you might imagine, opens a huge can of worms.

Related Reading | Since China’s Mining Ban, Bitcoin Hashrate Has Recovered by 68% And Counting

Full of confidence, Plan B responds, “Yes, and they closed the exits, typical they always do that.” Bad for the people in China but, in general, bullish for Bitcoin. To recap: the government saw this coming from a distance. They knew the crisis was going to repeatedly hit the country and banned Bitcoin mining to scare the population into not buying the hardest asset ever created. Bitcoin, the true hedge against the collapse of every economy. In any case, the Chinese government will probably try to print its way out of this one. And somehow it’s going to use this crisis to unveil their Digital Yuan CBDC.

Does the theory sound coherent to you? Or is there even more to this story?

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Five Gems From Van Valkenburgh’s Testimony At The Congressional Hearing

The congressional hearing hilariously titled “America on ‘FIRE:’ Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?” is the gift that keeps on giving. NewsBTC already analyzed some aspects of it, but Peter Van Valkenburgh’s testimony merits an article on its own. The Director of Research at Coin Center got several important ideas on the record, and we’d better register and remember them.

The previous article’s introduction still stands:

The U.S. Congress Oversight and Investigations Subcommittee held a hybrid hearing on Bitcoin and cryptocurrencies. The institution summoned Alexis Goldstein, Director of Financial Policy for the Open Market Institute, Sarah Hammer, Managing Director at the Stevens Center for Innovation in Finance, Peter Van Valkenburgh, Director of Research at Coin Center, and others.

Related Reading | New 2021 FATF Crypto Guidelines Labelled as Mass Warrantless Surveillance

Since we at NewsBTC already did the job and covered the ridiculous statements of Representative Brad Sherman, it’s time to give the mic to someone more qualified and informed. Let the record reflect that a full video of the whole hearing is not available at the time of writing. We’ll base our report on everything we could find on the open Internet.

What We Know About Peter Van Valkenburgh’s testimony

Luckily for us, Documenting Bitcoin preserved the best bit of Van Valkenburgh’s presentation. The Director of Research at Coin Center sets everything up by explaining why and how the Bitcoin network is censorship-resistant.

“… we have the advantage of knowing everything that the peer-to-peer ledger tells us. It’s shared and open, it’s not a proprietary standard from a corporation. And the peer-to-peer ledger shows us how much work these miners are performing to make sure that transactions get in blocks and they’re not censored by some third party or some government that wants to coerce certain transactions or block certain transactions. It’s this vibrant competition between miners that guarantees that the miner cannot form a cartel, and choose to systematically exclude certain persons from this financial system.”

To complete this idea, let’s quote Van Valkenburgh’s own “Understanding Bitcoin’s energy use” paper.

This competition is healthy because it means that the effort spent securing the network scales automatically with the value of the transaction data on the blockchain—not the number of transactions. So the more value there is riding on the Bitcoin network (because individuals value it more as reflected in the price), the more resources will be devoted to its security. 

This leads us to…

What About Bitcoin’s Energy Usage And The Lightning Network?

This man is a House of Representatives veteran. He knew what he was doing. Van Valkenburgh set everything up, and then he goes to the meat and potatoes of the testimony. He goes for the throat and flips the establishment’s argument about Bitcoin’s energy consumption on its head. He shifted the narrative and put a spotlight on the traditional financial sector’s known inefficiencies. 

“As far as energy usage, it’s worth noting that the traditional financial sector uses an estimated five times more energy than Bitcoin. Granted, the traditional financial sector moves more money. But it’s worth noting that Bitcoin’s energy usage doesn’t scale per transaction. So, most of the costs are the fixed cost of setting up an open peer-to-peer system that’s robust. And we have thechnologies like the Lightning Network that can bundle millions of transactions into that existing system without a meaningful increase in energy. So, it’s possible that we can have an open financial system that’s censorship resistant using one fifth of the energy of the current financial system.”

So yeah, the Lightning Network and its wonders are registered in the U.S. House of Representatives’ record. And, even though Bitcoin’s aim is not to outright substitute the ”current financial system,” the record reflects that Bitcoin is more energy-efficient, plus censorship-resistant as a bonus. Lastly, it’s worth noting that “five times more energy than Bitcoin” is an extremely generous estimate in favor of the traditional sector. 

BTCUSD price chart for 07/01/2021 - TradingView

BTC price chart on FTX | Source: BTC/USD on TradingView.com

What Does Van Valkenburgh Think About Regulation?

The fine people at Coindesk got hold of Van Valkenburgh’s prepared testimony. In a recent episode of their “The Breakdown” podcast, they cover an altogether different area of it:

There are a couple of key shifts in perception he tries to make, first, around the idea that crypto isn’t regulated, that’s wrong. It’s regulated all over the place at the state and federal level. It’s just fragmented. Second, crypto is for crime: wrong again, in 2020, only 0.34% of all cryptocurrency transaction volume involved a criminal sender or recipient and remember, those numbers came from Chainalysis, an organization that a huge number of government agencies spend multiple millions of dollars with every year. 

Related Reading | Bitcoin Lightning Network Sees Storm Of Activity And Adoption

This ties up nicely with the above discussed, and with this direct Van Valkenburgh’s quote:

“For every transaction we want blocked, there’s a transaction that we should celebrate for being unstoppable. Yes, there are criminals making payments on the Bitcoin network because banks won’t bank them. There are also pro-democracy activists and Belarus and anti-police violence protesters in Nigeria, taking donations on the Bitcoin network because local banks won’t bank them. For every decentralized app that’s trying to scam investors. There’s another that’s testing out ways to disperse universal basic income, will remove the corporate control over social networking, or eliminate the hacking risk inherent in centralized identity solutions.”

Suffice to say, this man went into the belly of the beast and spoke the truth. The Bitcoin movement will be forever grateful.

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