The entity also pointed out non-fungible tokens (NFTs) and virtual land purchased in metaverses, pointing out that they have been the subject of much speculation and affluence, noting that the reason most people bought these assets was in the hope that another buyer would buy them at a higher price. Regarding the case of the Terra network, the bank considered that the markets were shocked by the collapse of the third largest stablecoin, terraUSD (UST)noting that cryptocurrency-backed stablecoins have become an important part of the leverage built within the DeFi ecosystem.
This crash, Morgan Stanley noted, led to a “broader reappraisal of where many cryptocurrency prices should be trading,” a sentiment reinforced by the fact that the US Federal Reserve is withdrawing liquidity, it adds in the note.
In fact, the bank explained that the massive increase in stablecoin market capitalization by a factor of 30 since the beginning of 2020 has pushed up the price of cryptocurrencies, as stablecoins were responsible for providing much of the liquidity and the leverage.
In a report of Fortune published last week, it was pointed out that the sharp declines in Bitcoin, Ethereum and other tokens were not associated with the decline in the stock markets. Instead, prices were subject to “investor speculation, with limited real user demand”, according to cryptocurrency analyst Sheena Shah.
However, this speculation is not limited to cryptocurrencies, as NFTs and digital real estate in the metaverse are affected. Shah noted that most holders bought NFTs with the expectation that they would appreciate it, but at the moment this is simply not happening.
In general, this year has not been good for the NFT market. Total NFT transaction activity fell from $3.9 billion to $964 million from mid-February to mid-March. That’s not to say that all NFTs are suffering equally: recent collections of high-profile NFTs like Moonbirds and the sale of metaverse land to Otherdeeds have done big business.
According to Modesta Masiot, CFO of NFT rating platform DappRadar, most of the NFT trading was centered around “top-tier” NFT collections like CryptoPunks. “It appears that NFTs are entering perhaps one of many stages of maturity. We expected this and believe it to be a normal development in such technology,” she concluded.
