Morgan Stanley, in an investment note to its customers published on Tuesday, stated that more than 100 digital assets were created in the past week despite the recent fall in cryptocurrency prices. The American multinational investment bank and financial services company noted that these assets were majorly created on decentralized exchanges.
According to the report, cryptocurrencies have traded like risk assets due to stimulus from governments and central banks, but tighter Federal Reserve policy means that the “liquidity-driven crypto momentum trade” has reversed.
The report also mentions that the growth in bitcoin’s market capitalization has generally tracked growth in the global M2 money supply, noting that the crypto market capitalization grew 10-fold from the start of 2020 amid central bank easing.
What you should know
- Since its peak in November 2021, with a market capitalization of 2.92 trillion, the crypto market has fallen by approximately 38% to currently stand at $1.8 trillion, below the $2 trillion mark.
- The report also noted that Decentralized finance (DeFi) user growth has tracked ether prices. This means that there is a positive correlation between DeFi users and the price of the second most valuable cryptocurrency, Ether.
- DeFi is the term used to describe activities in the space which relate to lending, trading and other financial activities carried out on a blockchain, without needing to use traditional intermediaries.
- DeFi exploded in 2021 as the Total Value Locked (TVL), the measure of participation in the space, hit a peak of $253.21 billion according to DeFi Llama.
- The report also noted that trading activity has been weak during what it calls the “crypto bear market”, with exchange trading volumes of around $750 billion in March, half that of the November 2021 peak. Trading volumes have generally tracked the bitcoin price, it added.
The report also noted that Bitcoin has had a high correlation with equities since early 2020, and has had almost zero correlation with gold recently, noting that the cryptocurrency has been more correlated with the media and entertainment stocks in the U.S., as both are possibly driven by similar factors.
