NFTs, the next market in jeopardy?

After the fall in the cryptocurrency and stablecoin market, is the NFT market the next market to keep an eye on? That is the opinion of analysts at Morgan Stanley Bank.

After the storm experienced in the cryptocurrency market and in the stablecoin market, will the ecosystem experience new shocks? Yes, assesses the US bank Morgan Stanley in a new note.

“Hops and leveraged areas of crypto, such as decentralized finance (DeFi) and stack coins supported by other cryptocurrencies, are experiencing massive divestitures. As it becomes more and more clear that all high prices were traded on speculation with limited real user demand,” said Morgan Stanley analyst Sheena Shah.

The bank refers in particular to the episode of the Terra blockchain, and the collapse of its algorithmic stablecoin terra usd (UST) as well as the cryptocurrency luna. Last week, the largest stablecoin in history, Tether’s USDT, fell slightly and is now closely monitored by investors. The Stablecoin market remains fragile today: on Monday, another algorithmic stablecoin, DEI, lost its bond to the dollar and fell as low as $ 0.50 (against a promise of 1 DEI = $ 1). A new dive that makes others fear in the coming days.

“Stablecoins have become an important part of the leverage built into the decentralized financial ecosystem. This event has led to increased uncertainty and instability, which has led to a broader reassessment of how many cryptocurrency prices are expected to trade,” the note points out. .

The bank also has reservations about decentralized financing, at a time when many regulators are considering tight regulation of this universe. “With the fall in cryptocurrency and stackecoin prices, borrowers of decentralized financing platforms risk suffering from margin calls,” the bank estimates.

“NFTs have been the subject of much speculation”

In this context, Morgan Stanley believes that certain markets should be closely monitored. She mentions in particular the “most speculative and geared areas”. NFTs and virtual courts that it is possible to buy in decentralized universes like in The Sandbox, sometimes at totally exorbitant prices. “NFTs and digital countries have been the subject of much speculation and influx, which some regulators believe may even be partially illegal flows,” the memo points out.

As a reminder, an NFT (“Non Fungible Token” or non-fungible token) is a digital title, issued by a blockchain (mainly Ethereum) and linked to a digital asset (photo, video, etc.). Each NFT is unique and can not be rendered. NFTs are used in the arts, luxury sector or for trading cards in sports.

With a booming market last year, some people bought NFTs in hopes of reselling them for more later. Still, some NFT owners drink the cup a year later. This is especially the case with entrepreneur Sina Estavi. He rode on the wave of NFTs and in March last year bought the first tweet in history that Jack Dorsey posted in 2006, for a sum of $ 2.9 million. Mid-April, he tried to sell it on, except that almost no one wants it: the latter collected only about twenty offerings, the highest of which was 3.3 ethers, or about $ 10,073.

“The concept of NFT appears only three times throughout the report, making this claim that NFTs are the next to look for the Terra blockchain stablecoin crack all the more surprising. I actually do not understand the benefits of this parallel stablecoin and NFT “, explains to BFM Crypto Gauthier Zuppinger, COO (Operations Director) of NonFungible.com.

The latter points in particular to the speculative nature of the NFT market, which the bank mentions. According to a survey among 400 people in March 2022 by NonFungible.com, a third of respondents buy an NFT in the first place because of its economic potential, others do so for other reasons, such as to support artists and creators.

Annual NFT report published by NonFungible.com in March 2022
Annual report on NFT published by NonFungible.com in March 2022 © Source: NonFungible.com

“No offense for some, it seems that the NFT industry is not just a giant Ponzi, but that this ecosystem is based on a slightly more solid foundation than short-term profit,” emphasizes Gauthier Zuppinger.

Leave a Comment