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A Morgan Stanley research report dated May 12, details that Bitcoin’s refusal since April where it lost 40% of value is no longer due to its correlation with equity markets.
The investment giants has clients asking whether the large drop in crypto prices and the depegging of stablecoins includes a “more systematic risk for broader financial markets.”
Lead analyst Sheena Shah wrote:
“Hyped and leveraged areas of crypto, such as decentralized finance (DeFi) and crypto-backed stablecoins, are seeing mass liquidations, as it is becoming clearer that all the elevated prices were traded on speculation, with limited real user demand.”
Although crypto markets have been in bad weather since November, it got shocked by the collapse of the third largest stablecoin terraUSD (UST) in the past week.
The note explains that with stablecoins as an important part of the leverage built within the DeFi ecosystem, Terra’s downfall caused increased uncertainty and instability leading to a “broader re-evaluation of where many crypto prices should be trading at.”
The report adds that non-fungible tokens (NFTs) and digital land have been subject to mostly speculation with most people buying these assets doing so with the expectation to quickly resell for a higher price in dollars.
Sam Bankman-Fried, head of cryptocurrency exchange FTX, echoes the conclusion in the research and suggested to have separate and clearly refined definitions for stablecoins as there is too much confusion on the accompanying mechanisms.