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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?

Featured Image by Li Yang on Unsplash – Charts by TradingView

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“The Death Of China’s Bitcoin Mining Industry,” 7 Takeaways From The Article

Did China make the mistake of a lifetime by banning Bitcoin mining or do they have a secret plan? That’s the question the whole Bitcoin ecosystem is struggling to answer. And today, we got another piece of the puzzle. In the article titled “It’s Over, It’s All Over” – The Death Of China’s Bitcoin Mining Industry,” a pseudonymous manager by the name of Ye Lang tells his story. And in his tale, a bigger story is reflected.

Related Reading | Bitcoin Hash Rate Goes On Death Spiral Post China’s Crackdown On Miners

On May 21st, in a “meeting of the State Council’s Financial Stability and Development Committee, a top-level economic and financial policymaking body chaired by Vice Premier Liu He,” China decided to ban Bitcoin mining. Less than a month later, on June 19th, the Sichuan government ordered “the closure of Ye’s facility, along with 25 other cryptocurrency mining projects in the province.”

That story started like this:

Ye decided to jump on the Bitcoin mining bandwagon in 2018 when he closed down the majority of his internet café business, mortgaged his apartment in Anqing, Anhui province, borrowed money from relatives and left his wife and daughters to move to Sichuan

What can we learn from Ye’s first-hand experience?

1.- It Only Takes 80 Employees To Manage An 80,000 Bitcoin Miners Operation

At the peak of the facility’s Bitcoin mining operations, Ye was in charge of 80 employees and a total of 80,000 mining machines, with the entire project estimated to be earning more than 90 million yuan ($14 million) during the peak six months when Sichuan’s rivers are glutted and electricity is especially cheap

The numbers are staggering. Evidently, supersizing mining operations offers a huge advantage. Especially in regions with cheap electricity.

2.- Clean An Renewable Energy Didn’t Save Sichuan

The fact that the electricity for crypto mining in Sichuan came from clean hydropower meant that many thought the province would be a safe haven for Bitcoin miners. As pressure on local governments to cut carbon emissions mounts, projects were successfully shuttered in some other provincial-level regions — such as Xinjiang and Inner Mongolia — where the mining was chiefly fueled by coal. 

The only thing we can know for sure about the Chinese government’s plan is this: the environment is not on their radar. They’re closing these mining operations for other reasons altogether. 

3.- Bitcoin’s Energy Use Is Not The Issue

The fact that the Sichuan crackdown was about to hit, confirms what everyone has known: the “justification” for cracking down bitcoin miners, the cold shoulder on bitcoin by social luminaries (such as Elon Musk) and the use of the ESG bullshit excuse that crypto is “dirty” have always been merely a socially-acceptable smoke screen for a regulatory crackdown on cryptos when they become too big.

Enough said. ZeroHedge nailed it on the head. 

It’s also worth noting that Nic Carter also nailed it on the head regarding China’s energy mix when it came to Bitcoin mining.

4.- Individuals Can Still Mine Bitcoin In China

Despite the government’s hardline approach, Ye is determined to carry on: “This industry is extremely volatile. High emotions and stress are involved, but that’s also its appeal. Companies are banned from mining Bitcoin, but individuals aren’t,” Ye said, adding that he plans to turn around his operation by purchasing old equipment and downsizing.

The Chinese government was only worried about industrial-sized private mining operations. The question is why. What are they planning? Nobody seems to have figured that out.

5.- One Owner Mined Between 70 and 80 Bitcoins Per Day

Another character enters the scene, the owner of the mine. We’ll call him Liu Weimin, also a pseudonym. 

Liu owned more than 10 Bitcoin mining farms, which industry insiders estimated accounted for one-eighth of the total electricity consumed by all Bitcoin mines in the province.

During peak seasons, Liu said his farms could mine 70 to 80 Bitcoins every day. About 900 Bitcoins are issued each day globally, according to an industry information platform.

Almost 10% of the total daily issuance seems like too much for a single individual. The Bitcoin world scored a huge win with the Chinese ban on Bitcoin mining. 

BTC price chart on Bitstamp | Source: BTC/USD on TradingView.com
6.- A Industrial-Sized Mine Can Break Even In A Year

“Mining farms are somewhat like conventional crop farms. No matter how the Bitcoin market changes, the mining process remains. Opening such facilities is a relatively stable investment, and I can generally break even in a year,” Liu told Caixin.

There are few businesses in the world that can give you that ROI. At least among the legal ones. Food for thought for the young entrepreneurs out there.

Related Reading | How China Bitcoin FUD Is Lowering The Cost To Produce BTC

7.- Bitcoin Mining Used To Be A Respected Business In China

Thanks to the Sichuan government’s mining-friendly policies back then, Liu’s business continued to flourish for the past three years. He quickly made a name for himself, and was a frequent guest at government events and meetings, where he was recognized as one of many model energy consumers who had helped lift locals out of poverty.

From a respected businessman to a social pariah. It would be easy to feel sorry for Liu if he wasn’t on his way to restore his business.

Following the government’s May 21 crackdown announcement, he arranged teams of employees to scout for new venues in North America and Kazakhstan. In mid-June, his company bought an oilfield in Canada that could potentially provide fuel for his Bitcoin mining business.

So, why did China banned Bitcoin mining? We have no idea. We know, however, that their hold over the industry was already waning and that entrepreneurs are selling small hydropower stations. And we have both Ye and Liu’s stories. Is the picture clearer? Are we closer to the real deal?

Featured Image by Лечение Наркомании from Pixabay – Charts by TradingView