“Framed and leveraged crypto areas such as decentralized finance (DeFI) and crypto-backed stablecoins are experiencing selloffs as it becomes increasingly clear that all high prices were traded on speculation, with real demand limited number of users," the analysts said. . by Sheen Shah wrote.
Non-fungible tokens (NFTs) and digital lands have been the subject of much speculation and influx, according to the report, adding that the reason most people bought these assets was based on the expectation that another buyer would want to buy them. buy them at a higher dollar. price.
The bank notes that while crypto markets have been trading poorly since November, they were surprised by the collapse of the third-largest stablecoin, terraUSD (UST), in recent days.
Stablecoins have become an important part of the leverage created within the decentralized finance (DeFi) ecosystem, the note says, adding that this one-time event leading to increased uncertainty and instability resulted in a “broader reassessment of where many cryptocurrency prices should be traded." .
DeFi is an umbrella term used for lending, trading, and other financial activities, carried out on a blockchain, without the use of traditional intermediaries.
The most speculative and exploited areas of the crypto markets are now in the spotlight as interest rates rise globally and the Federal Reserve cuts liquidity, the note adds.
The massive increase in stablecoin market capitalization, a 30-fold increase since the beginning of 2020, also influenced cryptocurrency prices, as stablecoins were responsible for providing a lot of liquidity and leverage effect, said the bank.
Morgan Stanley says its clients wonder whether the sharp decline in cryptocurrency prices and the decoupling of stablecoins pose a "more systematic risk to broader financial markets."