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Bitcoin (BTC) has dropped 40% since April, and Morgan Stanley (MS) noted in a May 12 research study that this is no longer due to its link with equities markets.

- "Mass liquidations are occurring in hyped and leveraged areas of crypto, such as decentralized finance (DeFi) and crypto-backed stablecoins, as it becomes evident that all of the elevated values were traded on speculation, with no real user demand," analysts lead by Sheena Shah stated.

- According to the report, non-fungible tokens (NFTs) and digital land have seen a lot of speculation and inflows, with most people buying these assets with the assumption that another buyer would wish to buy them for a higher dollar price.

- NFTs are blockchain-based digital assets that can be sold or traded to represent ownership of virtual or physical goods.

- While crypto markets have been trading poorly since November, the bank says that the recent fall of the third largest stablecoin, terraUSD (UST), has surprised them.

- According to the paper, crypto-backed stablecoins have become a major part of the DeFi ecosystem's leverage, and this one incident has caused additional uncertainty and volatility, resulting in a "broader re-evaluation of where various crypto values should be trading at."

- DeFi refers to lending, trading, and other financial operations conducted on a blockchain without the use of traditional middlemen.

- As interest rates climb globally and the US Federal Reserve eliminates liquidity, the most speculative and leveraged sections of crypto markets are now under focus, according to the note.

- According to the bank, the significant surge in stablecoin market capitalization – a thirtyfold increase since early 2020 – has had an impact on crypto prices, as stablecoins provided much liquidity and leverage.

- Morgan Stanley said its clients are wondering if the steep drop in cryptocurrency values and the depegging of stablecoins offer a "more systemic risk for broader financial markets."

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