Morgan Stanley, the multinational investment bank and financial services company, published their latest report on Bitcoin on October 31. The report, which contains an overview of Bitcoin’s evolution and how its investment purpose has changed throughout its existence, comes off as bullish compared to the 2017 outlook. Morgan Stanley analysts also report about the recent stable coin trend and the reaction of banks and investors towards Bitcoin. The report also talks about the drawbacks of Bitcoin, including energy and lack of regulations.
Morgan Stanley recently started offering trading in derivatives tied to Bitcoin. The firm started offering Bitcoin swap trading tied to futures contracts. Earlier this year, CEO James Gorman said that a trading desk specializing in derivatives tied to digital assets could be a potential service offered to clients.
Morgan Stanley was reported comparing Bitcoin to Nasdaq to clients, albeit moving “15x” faster. The bank also predicted that financial markets would increasingly adopt crypto in the future: “Over the coming years, we think that the market focus could turn increasingly toward cross trades between cryptocurrencies/tokens, which would transact via distributed ledgers only and not via the banking system.”
The Stable-coin trend
The stable-coin trend that began in late 2017 and with several industry giants launching stable-coins of their own, experienced a boom in the summer of 2018. Stable-coins are cryptocurrencies designed to minimize the volatility of price to an absolute minimum and are usually backed by either fiat currencies such as the U.S. dollar, commodities, gold, or other crypto assets.
The report notes how the introduction of stable-coins in the crypto market resulted in BTC trading volumes taking a proportional hit, even though Bitcoin still makes up around 54% of total market valuation. Analysts write that this aided the subsequent fall in prices that resulted in the current bear market.
A section dedicated to comments from regulators was included in the report. Central banks all over the world are warming up to digital currencies with the exception of Sweden, which is yet to decide on an e-Krono.
The head of the Division of Corporate Finance for the SEC, William Hinman was included in the report, stating that more work needs to be done on establishing client expectations and classifying cryptocurrencies: “Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers.”
The chairman of CFTC, Christopher Giancarlo, was also documented by Morgan Stanley as being apprehensive of the potential of crypto: “I personally think that cryptocurrencies are here to stay. I think there is a future for them. I’m not sure they ever come to rival the dollar or other hard currencies, but there’s a whole section of the world that really is hungry for functioning currencies that they can’t find in their local currencies. There are 140 countries in the world, every one of them has a currency. Probably two-thirds are not worth the polymer or the paper they’re written on, and those parts of the world rely on hard currencies. Bitcoin [or another] cryptocurrency may solve some of the problems.”
The rapidly morphing thesis
One highlight of the Morgan Stanley report is what it calls crypto’s “rapidly morphing thesis.” Tracing Bitcoin’s evolution from varying roles of digital cash, a new fundraising mechanism, a method for the store of value, to its most recent form as a “new institutional investment class.”
Hedge funds make up 48 percent of funding for Bitcoin, according to the report. Venture capital provides a further 48 percent with the remaining 3 percent found in the form of private equity. Over half of Bitcoin investments have come from U.S. based investors, with China and Hong Kong coming in a joint second at 9 percent and the U.K. finishing off at third at 6 percent.
Morgan Stanley’s research division releases regular reports on crypto, the last of which, entitled “Diversified Financials: Exploring global cryptocurrency regulations” was released on Aug. 21. The last report released by Morgan Stanley to focus on Bitcoin was released in January 2018. The bullish outlook of the 2018 report might be indicative of an upcoming influx of institutional players into Bitcoin investments in the 2019 financial year.