Morgan Stanley Says Tightening in the Crypto Market Has Paused

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While the market cap of stablecoins, an indicator of crypto liquidity, has stopped falling, demand for leverage has yet to start recovering, the bank said.

Institutional investors have stopped redeeming stablecoins and the coins’ market cap, an indicator of liquidity in the crypto market, has stopped falling. Even so, there appears to be little demand for positions to be rebuilt, Morgan Stanley (MS) said in a research report Friday.

Last week was the first time since April that the market cap of the coins – cryptocurrencies whose value is tied to real-world assets such as gold or national currencies – didn’t drop on a monthly basis, according to the report. While it is still 20% below its peak, this may be a sign that “extreme institutional deleveraging” appears to have paused for now.

With central banks continuing to tighten monetary policy, there isn’t much demand to borrow to finance crypto investments, the bank said, noting that lending on decentralized finance (DeFi) platforms is down 70% this year.