Following the collapse of Terra’s LUNA token and UST stablecoin, analysts at Morgan Stanley have declared that non-fungible tokens (NFTs) may be the next cryptocurrency sector problem.
According to a research note obtained by Benzinga, the bank’s equity strategists led by Sheena Shah identified NFTs and digital real estate as areas to keep an eye on because of the high degree of speculation linked with trading them.
“Mass liquidations are occurring in hyped and leveraged parts of crypto, such as decentralized finance and crypto-backed stablecoins, as it becomes more evident that all the exorbitant prices were bought on speculation with little actual user demand,” the experts added.
While some have lauded the rise of NFTs as a way to invest in digital art and collectibles, others have raised red flags about their potential for scams and lack of regulation.
NFTs are digital assets that are unique and not interchangeable. They’re often used to represent items in video games or online worlds, but they can also be used for more practical purposes like tracking provenance or ownership of digital assets.
The value of NFTs is derived from their uniqueness, which can make them more susceptible to manipulation than other types of digital assets.
Some had compared the current NFT mania to the rise of initial coin offerings (ICOs) in 2017, which resulted in many investors losing money when the bought tokens failed to hold their value. It’s still too early to tell whether NFTs will suffer the same fate, but the Morgan Stanley note suggests that the hype surrounding them is not sustainable in the long term. With the recent decline in the price of Bitcoin, NFTs may become the next target for speculators looking to cash in on the latest crypto craze.
Continuous Dwindle of the Crypto Market
According to the trading firm, over three-quarters of the top 100 digital currencies have seen their peak price over the previous year, but they are down an average of 62% from their 2021 all-time high.
Based on a recent analysis from other professional traders, cryptocurrencies are now facing an existential crisis. According to the report, many market participants appear to be losing money at the moment; this might result in more forced liquidations.
“There was a lot of interest in the digital assets, such as NFTs and digital land, that were directly related. Many people bought these assets expecting someone else to pay a higher USD price.”