Morgan Stanley warns about NFTs after Terra fiasco

May 16, 2022, 3:16 PM UTC

As the crypto collapse of 2022 continues, Morgan Stanley says investors in other digital assets should be on alert, as those could be the next to fall.

A report, issued last week, noted that the steep declines of Bitcoin, Ethereum and other tokens was not tied to the decline in equity markets. Instead, wrote crypto analyst Sheena Shah, the higher prices were due to investor “speculation, with limited real user demand,” Coinbase reported. 

That speculation, the note continues, isn’t limited to cryptocurrencies. Both NFTs and digital real estate in the metaverse have been just as vulnerable to speculation. And that raises concerns for both.

Shah notes that many people bought NFTs with the expectation that they could sell them for a higher price to another buyer. And, with a few exceptions, that’s simply not happening now.

The NFT market had a rough start to this year. Total NFT transaction activity went from $3.9 billion to $964 million between mid February and mid March, according to a May report from Chainalysis. 

However, recent high-profile NFT collections like Moonbirds, and the metaverse land sale for Otherdeeds, which is associated with the Bored Ape Yacht Club, did major business. 

Modesta Masoit, finance director at NFT ranking platform DappRadar, told Fortune earlier this month that NFT trading was mostly centered around “blue-chip” NFT collections, like CryptoPunks. 

“NFTs look to be entering perhaps one of many maturity stages,” said Masoit. “We expected this and believe it’s a normal development in such technology.” 

Not everyone agrees. Some high-profile NFT investors are bracing for a notable downturn. In February, an investor who has been buying NFTs since February 2020 told Fortune “I am prepared, I think, for a cataclysmic market crash.” 

Shah said Morgan Stanley was taken by surprise by the collapse of the TerraUSD stablecoin, noting that it has resulted in a “broader re-evaluation of where many crypto prices should be trading at.”

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