Morgan Stanley Warns NFTs Could be Next to Collapse

Morgan Stanley, a global investment bank and wealth management firm, warned that non-fungible tokens (NFTs) could be next to collapse amid the devastating decline of TerraUSD (UST), an algorithmic cryptocurrency and LUNA, the native token to the Terra blockchain, according to a Coindesk report.

“Hyped and leveraged areas of crypto, such as decentralized finance (DeFi) and crypto-backed stablecoins, are seeing mass liquidations, as it is becoming clearer that all the elevated prices were traded on speculation, with limited real user demand,” analysts led by Sheena Shah wrote, reported by Coindesk. 

In other words, the report by Morgan Stanley claimed that NFTs and digital land were primarily purchased on speculation that someone else in the future would want that digital asset for a higher price, and would thus make a profit. Initially purchases were not based on the intrinsic value they believed it held or user demand. 

NFTs are digital assets on a blockchain that represent ownership of virtual or physical goods that can be traded or sold. Some of them even have utility, meaning if you own a certain NFT you may have the ability to attend sports games or conferences, simply because you are the owner. 

Some of the most popular NFT marketplaces are OpenSea, Rarible and Axie marketplace. In addition, Coinbase has its own marketplace called Coinbase NFT that is in its beta form, but open to everyone. Their goal is to create a platform where NFTs meet social media, which would allow many different users to interact with each other on a much more personal level. 

The most successful projects in the last 30 days include Otherdeed for Otherside, Moonbirds and Mutant Ape Yacht Club. 

Now the most speculative areas of crypto, like DeFi and stablecoins will be analyzed with a much closer eye in light of the UST collapse and recent Morgan Stanley report. Crypto-backed stablecoins have become an important part of creating the DeFi ecosystem and with one of the largest crypto-backed stablecoins taking a catastrophic drop, the field has lost some integrity and remains more uncertain than ever. 

DeFi is an all-encompassing term used for lending, trading and other activities carried out on the blockchain without traditional intermediaries. It’s decentralized. It’s supposed to remain away from institutional banks, etc. 

Morgan Stanley concluded that its clients are asking whether the large fall in crypto prices and the depegging of UST poses “more systematic risk for broader financial markets?” As of now, it would certainly seem like that could be the case, but now the big question is how will crypto rally after this most recent drama? 

Author: Tyler Irvin

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