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Morgan Stanley’s Bitcoin Move Puts Pressure on Rivals

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What You Need to Know

  • Morgan Stanley is allowing limited investments in 3 Bitcoin funds for accredited wealth management investors.
  • Other banks are expected to follow Morgan Stanley's lead.
  • Banks risk losing clients if they don't meet the demand for access to cryptocurrencies, an analyst says.

Morgan Stanley is the first major U.S. bank to provide clients access to Bitcoin funds, but it won’t be the last.

“No one wants to be first toe-dipper, but we have one [for cryptocurrency funds] in Morgan Stanley,” said Tim Welsh, founder and president of Nexus Strategy. “The rest will follow.”

This first step by Morgan Stanley is limited to the taxable brokerage accounts of its U.S. wealth management clients who opened their accounts at least six months ago, are accredited investors and have a minimum $2 million in cash and marketable securities at Morgan Stanley Wealth Management, according to people familiar with the details of the announcement.

Advisory accounts are not given access to the Bitcoin funds.

Wealthy brokerage clients that meet the bank’s investment requirements — along with entities that have a Morgan Stanley wealth management account and a minimum $5 million in cash and institutions — will have access to three Bitcoin funds: two from Galaxy Digital, the Galaxy Bitcoin and the Galaxy Institutional funds, which each have a minimum investment of $2 million, and the FS NYDIG Select Bitcoin Fund LP, which requires a $25,000 minimum.

The funds are not intended for short-term or active trading strategies, according to people familiar with the Morgan Stanley announcement and investments in the funds will be limited to 2.5% of the total net worth of the bank’s eligible wealth management clients.

Michael Saylor, the CEO of MicroStrategy, an enterprise analytics platform that has invested at least $1 billion in Bitcoin, and Chris Kuiper, vice president at CFRA Research, agree with Welsh about Morgan Stanley’s precedent-setting move.

Saylor tweeted that Morgan Stanley is the first bank to offer but won’t be the last. Kuiper told ThinkAdvisor that other banks will follow Morgan Stanley’s lead “as long as there is client demand.” Banks risk losing clients if they don’t allow access to cryptocurrencies amid such demand, according to Kuiper.

He said Morgan Stanley’s move “validates Bitcoin (and crypto assets in general) as a new asset class that continues to gain momentum and a place in investor portfolios.“ The global crypto asset market capitalization is currently around $1.6 trillion, with Bitcoin accounting for about $1 trillion, or almost 63%, of those assets.

“With investors seeing equity markets nearing all-time high valuations (by many measures) and bonds offering very low yields, they are increasingly turning to alternatives like crypto,” Kuiper said. He attributed the recent increase in demand for Bitcoin to increasing concern over inflation and Bitcoin’s properties as a potential store of value and therefore inflation hedge.

Welsh also credits Tesla CEO Elon Musk for the “natural evolution” in the Bitcoin market. Musk’s announcement in early February that Tesla had invested $1.5 billion in the cryptocurrency and was considering accepting payment in Bitcoin for its vehicles was a tipping point. The announcement gave Bitcoin credibility, Welsh said.

But the $2 million minimum that Morgan Stanley has set for individual accredited investors to own Bitcoin funds in their brokerage account is “pretty out of touch with how mainstream crypto investing has become,” said Dave Nadig, director of research of ETF Trends and ETF Database.

“If I’m a $500,000 client I could just invest in any number of hedge funds, and frankly if I’m an ‘advised” client of size at almost any firm, I can likely trade Canadian ordinaries,” he said. “I could just buy BTCC in Toronto and call it a day.”

BTCC, the Purpose Bitcoin ETF, is the first Bitcoin ETF and it trades on the Toronto Stock Exchange.

(Photo: Shutterstock)

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