- The wobble in the global markets over the Evergrande scare suggests investors are ready to get out
- The incident was only localized to China, but western markets still reacted badly
- Bitcoin holders should keep an eye on the temperature of the markets
The news that Chinese homebuilder Evergrande was on the verge of defaulting on hundreds of millions of dollars worth of loans was enough to spook traditional markets, with all indexes dropping as a result. Bitcoin, too, reacted with a near $5,000 drop. Evergrande seems to have smoothed over its money troubles for now, but analysts warn that there are several other companies with worse balance sheets around. If a China-centric debt mountain was enough to spook the markets so much, can we infer that it is just a matter of time before the world is hit with another global market crash, and should Bitcoin holders worry?
Key Indexes Show Markets Are Almost Parabolic
When considering if global markets are in a bubble, the first thing to do is look at the key indexes:
As we can clearly see, stock prices have been going in one direction since the end of the 2007-2008 financial crash. In fact, in many cases it seems that the coronavirus drop in March 2020 barely held them back. All three indexes are either on the verge of going parabolic or already are, and as we know from Bitcoin’s experience, when something goes parabolic it is usually a sign that an end is near.
The seven years between the recession of the early 2000s and 2008 was peanuts compared to what has happened since. The value of the S&P 500 is getting on for three times the 2008 values, the Dow Jones is over twice the 2008’s valuation, and the NASDAQ contains an incredible 7.5 times more wealth than it did back in 2008.
Time May Be on Bitcoin’s Side
All three markets showed incredible strength after the coronavirus shock in March, but the rebound has, in the case of the NASDAQ, been almost vertical. The fact is that the Evergrande crisis was, in reality, only ever going to affect China. They didn’t owe money to American banks and China wasn’t going to default on any loans if it went under, so it would have been absorbed. But the fact that the markets took a nosedive anyway shows that investors are ready for the markets to turn south – they’re trying to get ahead of the game and get out at the first sign of trouble.
This does not bode well for Bitcoin, which as we have discussed in the past is probably the worst asset to hold during a financial crisis. How traditional markets respond to the recent wobble is important, but it doesn’t seem that the Evergrande problem is going to be the card that pulls the whole deck down. This should give Bitcoin another 9-12 months to hit that golden target of $100,000, but by the time it manages that the markets could be in a very different place.