Morgan Stanley Says Ether Underperformance Echoes Crypto Downturn of 2018

The largest altcoin, ether (ETH), is underperforming bitcoin (BTC), just as it did during the downturn in crypto markets in 2018, Morgan Stanley (MS) said in a report Monday.

U.S. dollar liquidity is being withdrawn from markets and expectations of higher Federal Reserve interest rates are hurting crypto prices, the report says.

Ether, the second-largest cryptocurrency, has dropped about 75% from its November peak, analysts led by Sheena Shah wrote.

“When the ETH/BTC relative cross falls, it is a sign that the broader crypto enthusiasm is waning” as money is being pulled out of the more volatile alternative coins, the note says.

Although ether’s price cycle in U.S. dollar terms is similar to 2018, the analysts noted that this time round it’s largely institutional investors driving sales. In 2018, the share of retail trading activity was much higher.

The crypto-equivalent of quantitative tightening has continued, the bank said, fueling BTC’s slide to below $28,000, an important technical level. Any investors who bought BTC in the last year are now at a loss, and there are no obvious technical levels to watch until about $19,500, the 2017 high, it added.

For stablecoins, “issuance is contracting quickly,” the report says, and that has contributed to leverage halving within the “decentralized crypto ecosystem” since the beginning of May, and the destabilizing of crypto derivative prices as they diverge from their underlying assets.

Read more: Morgan Stanley Sees Crypto Equivalent of Quantitative Tightening