• Evergrande was cautioned by Chinese authorities to avoid a bond default.
• After the market collapse, COVID-19 market slippage caused the cryptocurrency market to not react well.
• Global economies can be destroyed by market manipulations or shady lobbying.

Banks are essential for any entity’s ability to grow and function. Banks and nations-states can borrow money to expand or keep their businesses afloat. In some ways, debt can be a catalyst for innovation and growth. However, the operational model could be risky. It should be overseen by an authorized body to ensure that there are no financial mishaps.

Cause for Concern

Evergrande was due to fail. S&P Global cautioned as early as September 2020 that China’s most indebted real estate enterprise showed severe financial risks. Flash forward to 2021 and Evergrande’s debt default looks likely. Evergrande now has a $300 billion dept. The company, however, has not spoken out in the last few days. Chinese authorities cautioned Evergrande to avoid a bond default after Thursday’s $83 million bond interest payment was omitted.

The market turmoil caused the cryptocurrency market to retrace after the Tether reports emerged, indicating that the stablecoin may hold Evergrande commercial paper (CP). Tether has denied any allegations about crypto or Tether, but it created even more confusion in the crypto market. Tether, however, is susceptible to the domino effect on the Chinese market in case Evergrande defaults.

Evergrande is one of the many companies that’s been the victim of their own success. Twitter (NYSE:) user Mr. Whale notes that the Evergrande case is “reminiscent of the 1997 Asian financial crisis.” The current fiasco is not singular even as financial debacles continue to emerge.

On The Flipside

• Predicting the newest financial crash is similar to finding the needle in the haystack for those who don’t understand basic economics.
• Public opinion will be misled by companies and businesses to their advantage.

Manipulations and Markets

Financial debt is accounted for in most economical models. Financial risks are increased by illegalities and unethical activity. Even banks previously criticized for their conduct continue to place terms on the edge of legality. For example, JP Morgan, who’s previously denied Bitcoin’s ascendance, has settled for $15.7 million after allegedly manipulating the U.S. Treasury futures market.

JP Morgan was also able to settle for $920 million in 2020, after manipulating precious metals Treasury market. Banks are subject to regulation and can be found engaging in suspicious activities. This is what will stop individuals or companies like Elon Musk from manipulating the cryptocurrency market.

Michael Burry and Jeffrey Gundlach, the bond king, warned of a possible crash because retail investors have overvalued both crypto markets as well as stocks. However, what’s noteworthy is the fact that companies still engage in selling “junk bonds.”

A Problem Brewing?

Newsweek’s Philip Pilkington highlighted that companies that issue junk bonds or high-yielding bonds are susceptible to market defaults and are lucrative for investors because interest rates are very high. The Fed purchased junk bonds after the COVID-19 panic, dismissing any possibility of a crash.

Bloomberg reports that junk bond sales reached levels not seen since the crash of 2008. Companies, such as Coinbase (NASDAQ):, which is a major U.S. crypto-exchange, started issuing junk bond when investor interest surged. What’s more, Microstrategy (NASDAQ:) also reportedly sold more than $500 million in junk bonds.

Global markets will not be affected by crypto wars, but a collapse of the crypto-economic model could have devastating consequences for the global economy. Investors are constantly allocating some of their assets towards digital assets.

What are the reasons to care?

Market disruptions and financial crises are likely to continue. It is possible to predict market direction by knowing how the economic and financial model influences the behaviour of companies and financial institutions.

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