Morgan Stanley Report Shows Strong Institutional Investment for Bitcoin

On Oct 31, multinational investment bank and fiscal services visitor, Morgan Stanley, released their latest written report on Bitcoin. The report, entitled "Update: Bitcoin, Cryptocurrencies and Blockchain," stated that Bitcoins and altcoins have constituted a "new institutional investment class" since 2022.

In comparison to Morgan Stanley's 2022 report on Bitcoin, their 2022 outlook is bullish. The report contains an overview of both how Bitcoin has evolved, and how its investment purpose has changed throughout its existence. Morgan Stanley analysts also touched upon the recent stablecoin trend and both fundamental bank and regulator reactions to Bitcoin for the last six months. The report listed several shortcomings that persist for Bitcoin, such as energy consumption and a lack of a robust regulatory framework. Analysts have revealed almost the "surprising" modify in funding flowing into the sector, along with an increasing tendency for crypto-tied futures.

All eyes on futures

This latest evolution, described by the bank as "surprising," comes against the properties of Morgan Stanley offering trading in derivatives tied to the largest cryptocurrency. It's of import to note that the bank is not really planning to trade Bitcoin or cryptocurrencies directly but rather to offer Bitcoin swap trading tied to futures contracts. Earlier this twelvemonth, CEO James Gorman said that a trading desk-bound specializing in derivatives tied to digital assets could be a potential service offered to clients.

Futures are contracts in which the heir-apparent has agreed to purchase an asset at an agreed time and toll in the future. The same arrangement stands for the party selling the asset every bit well. These contracts note both the quality and quantity of the assets that are existence traded, standardized, and either crave physical delivery of the asset being traded or are settled in cash.

According to Bloomberg, the banking concern already has the measures in place to offer Bitcoin bandy trading, however, it will not officially launch any initiative without starting time ascertaining the level of institutional client demand and completing a thorough internal approval process.

Equally previously reported by Cointelegraph, Morgan Stanley told clients that Bitcoin was similar to the Nasdaq, albeit moving "15x" faster. The bank also predicted that fiscal markets would increasingly lean towards the use of crypto in the hereafter:

"Over the coming years, nosotros think that the marketplace focus could turn increasingly toward cross trades between cryptocurrencies/tokens, which would transact via distributed ledgers only and not via the cyberbanking system."

In spite of the depository financial institution'southward apparent readiness to roll out this latest venture, the fact that their list of institutions actually willing to articulate Bitcoin futures hasn't changed since their 2022 report tempers whatsoever short-term promise for wider adoption:

Stablecoin a gene to scout

The report fabricated specific mention of perhaps the most prominent recent development in the cryptocurrency sector: stablecoin. The stablecoin trend began in late 2022 and experienced a flare-up throughout the summer of 2022, with several manufacture giants launching stablecoins of their own.

Stablecoins are cryptocurrencies designed to proceed volatility to an absolute minimum and are ordinarily valued against either fiat currencies such as the U.S. dollar, commodities, and other crypto assets.

While emphasising that 54 percent of total cryptocurrency value remains Bitcoin, the report notes how the introduction of stablecoins to the crypto market resulted in a share of trading volumes being siphoned away from BTC. Analysts write that this aided the subsequent fall in prices that resulted in the current bear market.

According to the report, these consequences are due to the fact that a big quantity of the existing exchanges practise not currently facilitate trading crypto to fiat. The researchers land that this is downward to the fact that crypto->fiat trading involves going through the mainstream cyberbanking sectors and incurs a higher fee. The report then explains that the resulting slide in Bitcoin prices also had a knock-on effect across the sector, meaning that owners seeking to extricate themselves from Bitcoin holdings needed to find an nugget whose valuation more than closely reflected the valuation of the U.Due south. dollar.

Morgan Stanley researchers likewise emphasize that, in spite of the positive support for the sector'due south contempo tendency, not all stablecoins will survive. The report later on postulates that but stablecoins with low transaction costs, high liquidity, and a concrete regulatory structure will be successful in garnering widespread adoption.

While the report does not cast aspersions of the future welfare of whatever specific stablecoins, it does mention four coins to its readers:

USDT (Tether) receives a mention every bit existence responsible for the initial decrease in BTC trading volumes and for trading at roughly the same price as the U.S. dollar. However, the written report does not touch on the consequence of USDT losing its dollar pegging after dipping beneath the $1 mark in October 2022. The drib in valuation resulted in an apparent sell-off of the tokens in October and created a lack of confidence among traders.

Although Tether was previously 1 of the most ubiquitous and commonly traded stablecoins, it has recently been embroiled in a series of scandals over its lack of transparency and direction of reserves. Tether has since rebounded afterward finding a new banking partner and is "fully backed" by USD, according to a new statement.

Also receiving mention from the Morgan Stanley report is GUSD, launched in September by billionaire twins and established players in the crypto industry, Tyler and Cameron Winklevoss.

The Gemini dollar (GUSD) is backed by U.S. dollars reserved in a depository financial institution located in the U.s.a. and is eligible for FDIC "laissez passer-through deposit insurance." The twins hope for Gemini to revolutionize the stablecoin market place by eradicating time delays between 24/7 crypto markets and fiat markets that operate under fourth dimension restriction.

Middle's stablecoin, USDC, is the third stablecoin named by the report. Center, a consortium that includes Bitcoin mining behemothic Bitmain Technologies Ltd., is set to act as the platform for deposits and whatsoever fiat conversions for the new stablecoin. The consortium is a subsidiary of Circle, only, according to Bloomberg, the firm announced plans to transform it into an independent organisation.

USDC is starting off with a different approach to compliance than its nearly prominent competitor, Tether. Part of the agreement for issuers is that they allow certified auditors to monitor and review their USDC reserves.

The quaternary stablecoin mentioned in the report is DGX (Digix Golden Coin). DGX is equal to 99.99 percent LBMA approved golden in USD. The respective gold is held in Digix'southward banking concern in Singapore.

Bitcoin's "apace morphing thesis"

Another primal aspect of the Morgan Stanley report is what it calls crypto's "rapidly morphing thesis." The report traces the development of Bitcoin from its varying roles of digital cash, a new fundraising machinery, a method for the shop of value, to its most recent incarnation as a "new institutional investment class."

The report showed that 48 pct of funding for Bitcoin came from hedge funds. A further 48 pct came from venture capital with the remaining iii percent found in the form of private equity.

In terms of the origins of Bitcoin investment, over one-half has come from U.S. based investors, with China and Hong Kong coming in second at 9 pct and the U.K. – third at half dozen percent.

Alongside the financial statistics, the study also emphasizes that big players from the financial mainstream have tossed their hats into the band. Analysts draw attention to Bain capital'south $15 one thousand thousand Series B funding round for Seed Cx Institutional Trading Platform, Goldman Sachs & Galaxy Digital's $58.5 million investment in BitGo, likewise as Coinbase'south $8 billion valuation, drawing comparisons with Charles Schwab, Fidelity, and Nasdaq.

The report also touches upon the new tendency for crypto players to actively cooperate with institutions, giving the prominent instance of the Winklevoss twins' company, Gemini Trust, hiring Nasdaq to conduct market surveillance.

In spite of the seemingly bullish presentation on institutional involvement, the study goes on to mention that asset managers are still unwilling to take on reputational risks in an underdeveloped regulatory surround. The bank also highlighted the lack of a custodian solution to hold both cryptocurrency and private keys forth with that of big financial institutions currently invested.

Central banks response

The report likewise reveals a change in approach from fundamental banks. Co-ordinate to the Morgan Stanley analysts, the discussion surrounding digital versions of paper notes and coins has reduced, with the exception of Sweden who are yet to decide on the introduction of an e-Krona.

The report documents that the South Korean province of Gyeongbuk is looking to replace city-issued gifts certificates with a digital culling, forth with Thailand'southward research into facilitating liquidity and risk management. India's investigation into the toll efficiency of a digital rupee is likewise mentioned in the report, only no analysis is given on the progress of these projects nor are any forecasts made on their futurity success.

Regulators quoted in the report remain wary just crypto sees an increment in positive comments

Another section of the report is dedicated to comments from regulators. The Morgan Stanley written report documents that regulators are nonetheless skittish about how best to classify cryptocurrencies, every bit well every bit how to fit them into an appropriate framework in which they can be traded safely and legally.

William Hinman, caput of the Division of Corporate Finance for the SEC, is quoted in the report, stating that more work needs to be done on establishing client expectations and classifying cryptocurrencies:

"Key to determining whether a security is beingness sold is how it is beingness sold and the reasonable expectations of purchasers."

Chairman of CFTC, Christopher Giancarlo, was also documented by Morgan Stanley as being bullish about cryptocurrencies and their potential to become a physical role of the fiscal mainstream:

"I personally recall that cryptocurrencies are hither to stay. I think at that place is a futurity for them. I'chiliad not sure they always come to rival the dollar or other hard currencies, but there'south a whole section of the world that really is hungry for functioning currencies that they tin can't find in their local currencies. At that place'southward 140 countries in the world, every ane of them has a currency. Probably two-thirds are non worth the polymer or the paper they're written on, and those parts of the world rely on hard currencies. Bitcoin [or some other] cryptocurrency may solve some of the bug."

Morgan Stanley lists numerous blockchain benefits and companies using it

In light of the fact that Morgan Stanley has been using blockchain-based technology to behave out process transactions and to support records since March 2022, it might not come as a surprise that the bank listed several benefits that it believes the technology is capable of bringing to the table.

Co-ordinate to the study, blockchain is best implemented for B2B transactions in which the participants on both sides of the transaction are trusted. The bank also documents that blockchain technology provides benefits for cross border payments, a technique increasingly used by migrant workers to send money dorsum to their home countries as remittances. Researchers likewise noted that at that place are potential benefits in KYC and client data handling sectors, though they also mentioned that APIs may well be more efficient.

The written report provides a list of the many financial institutions that are actively trialling or implementing blockchain technology:

Researchers besides provided examples of key infrastructure utilize cases of blockchain, in detail for banks:

Attitudes change, but reservations remain

Although the report represents a significant modify in both Morgan Stanley's mental attitude besides as in other major financial institutions, it does highlight several areas where it remained apprehensive.

The study touches on one of the most commonly discussed drawbacks of blockchain and cryptocurrency: electricity use. Morgan Stanley analysts predict that the pass up in mining equipment price volition drive electricity use college:

This latest graph builds on the aforementioned concerns highlighted in Morgan Stanley's 2022 written report:

Bitcoin's considerable energy usage has been widely reported. Earlier this year, Cointelegraph reported on how Bitcoin was both on rail to use 0.5 percent of the globe'southward free energy by the terminate of 2022 and face an bear on to its profitability over electricity costs in the summertime months.

Morgan Stanley issues alarm over compatibility of AI and blockchain

The report dedicated an entire page to demonstrate the extent to which it believes AI and blockchain are "mortal enemies." Curiously enough, the extent of their conviction did not stretch to providing any justification for this notion whatsoever:

Morgan Stanley enquiry on cryptocurrency is released on a regular ground. The bank's previous report on crypto, entitled "Diversified Financials: Exploring global cryptocurrency regulations" was released on Aug. 21. The concluding report released past Morgan Stanley to focus on Bitcoin was released in January 2022. The November 2022 report is the commencement to certificate a change in institutional investment patterns and to certificate the trend for crypto-tied futures. The bullish outlook of the report could well be indicative of wider readiness for large institutional players to more than readily adopt Bitcoin in the 2022 financial year.

Source: https://cointelegraph.com/news/morgan-stanley-report-shows-strong-institutional-investment-for-bitcoin

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