© Reuters
Investing.com – The arguably permanent collapse of has sent shockwaves through the cryptocurrency market, largely eroding investors’ meager confidence in digital assets, with one still failing to sustain permanently above $30,000.
Thus, many are wondering where the next catastrophe will come from in the diverse world of cryptocurrencies, and assets evolving on blockchains in general.
In a note published yesterday, the bank Morgan Stanley (NYSE:) provided some answers:
“Popular and leveraged areas of crypto, such as decentralized finance (DeFi) and crypto-backed stablecoins, are seeing massive selloffs as it becomes clearer that all high prices were traded on speculation. , with limited actual user demand,” the bank wrote.
Morgan Stanley also pointed to non-fungible tokens (NFTs) and virtual land purchased in metaverses, which it said have been the subject of much speculation and influx, pointing out that the reason most people bought these assets was the hope that another buyer would buy them for a higher price.
Regarding the network affair, the bank judged that the markets were shocked by the collapse of the third largest stablecoin terraUSD (UST), pointing out that cryptocurrency-backed stablecoins have become an important part of leverage built within the DeFi ecosystem.
This cataclysm has, she says, led to a “broader reassessment of where many cryptocurrency prices should be trading”, a sentiment reinforced by the fact that the US Federal Reserve is withdrawing liquidity, the note adds.
The bank indeed explained that the massive increase in stablecoin market capitalization by a factor of 30 since the start of 2020 has pushed the price of cryptocurrencies higher, as stablecoins were responsible for providing a much of the liquidity and leverage.