NFTs, the next market at risk?

After the fall of the cryptocurrency and stablecoin market, is the NFT market the next market to watch closely? That’s what analysts at Morgan Stanley Bank think.

Will the ecosystem experience new shocks after the storm in the cryptocurrency market and in the stablecoin market? Yes, estimates the American bank Morgan Stanley in a new note.

“Hop and leveraged areas of crypto such as decentralized finance (DeFi) and stablecoins backed by other cryptocurrencies are seeing massive sell-offs. As it becomes increasingly clear that all high prices were traded on speculation, with limited real demand from users,” Morgan Stanley said. analyst Sheena Shah.

In particular, the bank refers to the delivery of the Terra blockchain and the collapse of its algorithmic stablecoin the terra usd (UST) and the cryptocurrency luna. Last week, the largest stablecoin in history, Tether’s USDT, fell slightly and is now being closely watched by investors. The stablecoin market remains vulnerable today: On Monday, another algorithmic stablecoin, the DEI, lost its peg against the dollar and fell to $0.50 (against a pledge of 1 DEI = $1). A new dive that will scare others for the next few 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, leading to a broader reassessment of where many cryptocurrencies prices are expected to trade,” it said. the note.

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

“NFTs are subject of much speculation”

In this regard, Morgan Stanley believes that certain markets should be closely monitored. She specifically mentions the “most speculative and leveraged areas”, in particular NFTs and virtual courts that it is possible to buy decentralized universes like in The Sandbox, sometimes at totally exorbitant prices. “NFTs and digital lands have been the subject of much speculation and influx, which some regulators believe are even partially illicit flows,” the note 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 cannot be reproduced. NFTs are used in the arts, the luxury sector or for card trading 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 of the entrepreneur Sina Estavi. Riding the wave of NFTs last March, he bought the first tweet in history posted by Jack Dorsey in 2006 for $2.9 million. mid April, he tried to sell it on, except hardly anyone wants it: The latter collected only about twenty offers, with the highest being 3.3 ethers, or about $10,073.

“The term NFT only appears three times throughout the report, which makes this claim that NFTs are next to watch after the Terra blockchain stablecoin crash all the more surprising. I don’t understand the merits of this parallel stablecoin and NFT really,” explains BFM Crypto Gauthier Zuppinger, COO (director of operations) of NonFungible.com.

The latter points in particular to the speculative nature of the NFT market mentioned by the bank. According to a survey of 400 people in March 2022 by NonFungible.com, a third of respondents buy an NFT primarily for its financial potential, others do it for other reasons, such as supporting 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

“Some will not be offended, it seems that the NFT industry is not just a giant Ponzi, but that this ecosystem rests on a slightly sturdier foundation than short-term profit,” underlines Gauthier Zuppinger.

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