For the last week, the blockchain community has watched as several cryptos, notably UST, Bitcoin, and Ether, have seen a sharp market decline. Now compared to the major market crashes of 2017 and 2020, billions of dollars of market value have been wiped out within days.
Naturally, there have been many theories about this market crash and what caused it. But according to a new report from investment bank Morgan Stanley, this decline cannot be blamed on the equity market but rather on speculation.
In the report, analyst Sheena Shah states that several aspects of the crypto industry were hyped and leveraged and now, investors are liquidating. This, the report says, is because its previous prices were propped up by speculative trading and less by real user demand.
While we are already seeing the effects of such trading activities, the report warns that NFTs could be next.
The report explains that the speculative buying of assets with the intention to trade later is not limited only to cryptocurrency itself but stretches into other aspects of blockchain. More specifically, NFTs and digital real estate in the metaverse were named as asset classes that are seeing a lot of speculative investment.
This means that a lot of people who are buying into both are not doing so out of a genuine need but with the hope that later in the future, they will be able to resell them for a profit. There is certainly some merit to this as oftentimes when NFT collections are released, people try to buy them all up with bots and the NFTs eventually end up on secondary trading platforms.
Also, given how much many are willing to pay for NFTs from specific collections, it should be profitable to buy them speculatively and resell them. But as the report notes, this does not always happen.
Take the now-infamous case of Malaysia-based Sina Estavi, who paid $2.9 million for the NFT of Twitter Co-founder Jack Dorsey’s first tweet. Over a year later, he attempted to resell the tweet hoping to make around $25 million from it.
This was not to be so as he received less than $10,000 in bids for the tweet. Despite this, he has expressed that the NFT will eventually be valued by the public and hopefully sold.
“Last year, when I paid for this NFT, very few people even heard the name NFT. Now I say this NFT is the Mona Lisa of the digital world. There is only one of that and it will never be the same. Years later, people will realise the value of this NFT,” he said.
Stop the Speculation
But what does all of this mean for the NFT space? Most likely, it should advise stakeholders to better interact with the industry and the assets within it out of genuine interest as opposed to pure speculation.
NFTs have a lot of potential real-life use and should not be reduced to speculative assets, lest we have a major market crash in the future.