Morgan Stanley After LUNA: Beware These Altcoin Markets!

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Morgan Stanley warns that as the altcoin crash of 2022 unfolds, metaverse and NFT investors may be at the center of the next drop.

Morgan Stanley points to this altcoin market after the Terra debacle

According to a study published last week, the drastic declines in Bitcoin, Ethereum, and other cryptocurrencies were not linked to the stock market crash. Coinbase said the rising costs were due to investor “speculation with minimal real user demand,” as crypto expert Sheena Shah observed. Shah’s analysis says that speculation is not limited to cryptocurrencies. NFTs and digital real estate in the Metaverse have been the target of speculation. It is stated that it will create problems for both parties, as it is invested only to make money through buying and selling.

According to Shah, many consumers buy NFTs with the expectation of selling them to another bidder at a better price. The NFT market had a rough start to the year. Total NFT transaction activity rose from $3.9 billion to $964 million between mid-February and mid-March, according to Chainalysis’ analysis for May. The metaverse property auction has worked well for recent high-profile NFT collections like the Moonbirds and Otherdeeds affiliated with the Bored Ape Yacht Club.

NFT trading is largely focused on “blue-chip” NFT collectibles such as CryptoPunks, as Modesta Masoit, chief financial officer of NFT ratings portal DappRadar, said earlier this month. According to Masoit:

NFTS LOOK AT ONE OF A FEW MATURATION PHASE. WE FORECASTED THIS AND WE THINK IT WAS A NATURAL PROGRESS IN TECHNOLOGY LIKE THAT.

Shah said the fall of the TerraUSD stablecoin caught Morgan Stanley off-guard, resulting in a “broader reassessment of where various crypto assets should be traded.”

Morgan Stanley says NFTs will follow after UST collapse

In the note, Morgan Stanley notes that crypto-backed stablecoins have become an important part of the leverage built within the DeFi ecosystem, leading to increased uncertainty and instability, which has “led to a broader reassessment of where many crypto prices should be.”

In the note, the bank says that the massive increase in stablecoin market cap, which has increased thirty-fold since the start of 2020, has also had an impact on crypto pricing, as stablecoins are responsible for providing so much liquidity and leverage. Morgan Stanley said its clients are asking whether the massive drop in crypto prices and the issuance of stablecoins poses “a more systematic risk to the broader financial markets.”