Morgan Stanley Backtracks Positive NFT Prediction; Rings Alarm Bells Following Terra Collapse

Morgan Stanley has backtracked from its $300 billion Non-Fungible Token (NFT) industry forecast and raised a red flag to NFT investors following the Terra fiasco.

The financial services company advised that investors in other digital assets should be watchful and vigilant as the cryptocurrency market collapse continues. In a note issued last week and picked up by Coinbase, Morgan Stanley said the steep downsides of crypto assets like Bitcoin, Ethereum and other tokens were not actually due to equity markets plummeting.

"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," analyst Sheena Shah noted. That speculation, according to Shah, is not only limited to cryptocurrencies but transcends to both digital real estate in the metaverse and NFTs, which also raises concerns for both spaces.

Investors, particularly NFT holders, purchased these digital collectibles with the expectation that they could resell them for a much higher price to interested buyers. However, with a few exceptions, Shah wrote that expectation is not happening right now.

The NFT industry has experienced a not-so-smooth start in 2022, as Chainalysis reported in May that transactions between mid-February and mid-March this year plummeted to $964 million from last year's $3.9 billion in the same period.

Morgan Stanley's warning came in the wake of the collapse of Terra. It opined that while crypto markets have been trading badly since November, it has been shocked by the collapse TerraUsd (UST), the third-largest stablecoin.

The financial services firm previously released a report on NFTs and commented that companies with strong Intellectual Property (IP) can capitalize on the market with the development of the metaverse slowly materializing. "NFTs and social gaming present two near-term opportunities for luxury brands, allowing them to monetize their vast IP (intellectual property) built over decades," the report said.

In the same report, Morgan Stanley also estimated the total market for NFT will surge to approximately $300 billion by 2030.