fbpx

Morgan Stanley Analysts: Watch For NFT Collapse After Terra UST/Luna Liquidation

Morgan Stanley Analysts: Watch For NFT Collapse After Terra UST/Luna Liquidation

NFT collapse

Photo by Simple FX, July 18, 2019, https://www.flickr.com/photos/156376278@N02/ https://creativecommons.org/licenses/by/2.0/

Morgan Stanley analysts warn that NFTs (non-fungible tokens) and other digital assets could fall after the third-largest stablecoin, TerraUSD (UST), collapsed, leading to increased uncertainty and instability.

TerraUSD (UST), called a stablecoin because of its reliance on a stable asset such as a U.S. dollar, lost its dollar peg on May 9, falling to as low as $0.65 amid a broad selloff in crypto and global equity markets.

Crypto analyst Sheena Shah said Morgan Stanley was surprised by the collapse of the TerraUSD stablecoin, and that it had resulted in a “broader re-evaluation of where many crypto prices should be trading at.”

Steep declines of Bitcoin, Ethereum and other tokens were not tied to the decline in equity markets but to investor “speculation, with limited real user demand,” Shah wrote, according to a Coinbase report. 

That speculation, the note continued, isn’t limited to cryptocurrencies. Both NFTs and digital real estate in the metaverse have been just as vulnerable to speculation, raising concerns for both, the note continued.

The reason most people bought these assets was based on the expectation that another buyer would want to buy them for a higher price in dollars. That’s not happening, with a few exceptions, Shah noted.

Bitcoin has fallen 40 percent since April, and this is no longer due to its correlation with equity markets, Morgan Stanley said in a May 12 research report.


Are you interested in getting smart on Life Insurance?
Click here to take the next step

“Hyped and leveraged areas of crypto, such as decentralized finance (DeFi) and crypto-backed stablecoins, are seeing mass liquidations,” analysts wrote.

In one month from mid-February to mid-March, total NFT market transaction activity went from $3.9 billion to $964 million, according to a May report from Chainalysis, Fortune reported.

An investor who has been buying NFTs since February 2020 told Fortune in February, “I am prepared, I think, for a cataclysmic market crash.” 

Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?

However, recent high-profile NFT collections did big business, such as Moonbirds, and the metaverse land sale for Otherdeeds, which is associated with the Bored Ape Yacht Club.

Most NFT trading is centered around “blue-chip” NFT collections such as CryptoPunks, said Modesta Masoit, finance director at NFT ranking platform DappRadar, in a Fortune report.

“NFTs look to be entering perhaps one of many maturity stages,” Masoit said. “We expected this and believe it’s a normal development in such technology.”

Morgan Stanley said its clients are asking whether the big drop in crypto prices and the depegging of stablecoins poses a “more systematic risk for broader financial markets.”

Photo by Simple FX, July 18, 2019, https://www.flickr.com/photos/156376278@N02/
https://creativecommons.org/licenses/by/2.0/