Morgan Stanley's Report: Bitcoin (BTC) is the 'New Institutional Investment Class'

  • Morgan Stanley's research division reported that institutional presence in the crypto space is increasing steadily.
  • Bitcoin (BTC) remains the dominant crypto asset class and is on track to be adopted as a payment method by more institutions.

Morgan Stanley, a New York-based multinational investment bank and financial services firm, has released a report claiming that significantly more new institutional investors are now interested in the crypto and blockchain space.

The American investment bank’s report also noted that the crypto industry is not attracting as many retail investors as it did previously.

In a follow-up to their writeup titled: "Bitcoin Decrypted: A Brief Teach-In and Implications," Morgan Stanley’s research department provided an update on the most recent type of business activity in the crypto space.

The report’s authors believe that bitcoin (BTC), which they defined as “digital cash”, will eventually become a legitimate asset class as there are now an increasing number of investors who have full confidence in the potential of the pseudonymous cryptocurrency.

Additionally, the researchers at Morgan Stanley think the payment system implemented by the Bitcoin protocol will be adopted by financial institutions. The report also mentioned that cryptocurrency platforms could help overcome the current issues in the traditional financial system.

"Rapidly Morphing Thesis" About Crypto Market

Referring to their analysis and findings as a “rapidly morphing thesis”, the report’s authors took into consideration the large number of security breaches of crypto platforms, the increasing number of hard fork upgrades, and the emergence of new cryptocurrencies that claim to be based on superior second or third generation blockchain technology.

Other factors that may be attributed to more institutional presence, or interest, in the crypto space include the immutability of most types of blockchain-based transactions, and market volatility, the report noted.

Notably, Morgan Stanley’s research group now has a new thesis which asserts that bitcoin is the “new institutional investment class”. The group further claims that the flagship cryptocurrency has been considered a legitimate class by institutions for almost a year.

The report also revealed that total crypto assets under management (AUM) has been steadily increasing. At present, there are approximately $7.11 billion in digital assets being managed by venture capital firms, hedge funds, and several privately held equity firms.

More Institutional Involvement: Fidelity, Goldman Sachs

In order to support their thesis, Morgan Stanley’s research division mentioned that an increasing number of traditional financial institutions have entered the crypto space. The report cited Fidelity Investments’ recently established digital assets division (for crypto custody and brokerage solutions) as a major development that legitimizes the crypto industry.

The researchers also pointed out that giant American multinational investment bank, Goldman Sachs, recently invested in crypto custody solution service, BitGo Holdings.

According to Morgan Stanley’s report, the current challenges the crypto industry is facing include regulatory uncertainty, the slow progress in the development of custodial solutions, and not enough large financial institutions involved in the nascent ecosystem.

Tether (USDT) Remains Dominant Stablecoin

Interestingly, the report also stated that bitcoin is "moving increasingly towards trading vs the stable coin USD-Tether (USDT)." In fact, about 50 percent of all bitcoin trades are now against another crypto asset - which is a fairly recent trend that picked up last year.

Going on to explain why stablecoins have been increasingly adopted, starting with USDT, the report reads:

USDT took an increasing share of BTC trading volumes as cryptocurrency prices started falling. This occurred because many exchanges only trade crypto->crypto and not crypto->fiat. Trading crypto->fiat requires going through the banking sector which charges a higher fee. Also as bitcoin prices fell, so did most all other coins so if owners wanted to come out of bitcoin holdings, they needed to go to another asset which was closer to the valuation of the U.S. dollar.

Morgan Stanley Research Division

Despite the emergence of many stablecoins, the bank’s research department does not think that all of them will be successful.

Only those stablecoins "with the lowest transaction costs, highest liquidity and defined regulatory structure" have the a fair chance of achieving mass adoption, the report noted