Morgan Stanley, a multinational investment bank and financial service company, published their latest Bitcoin report on October 31. The report provides a comprehensive overview of Bitcoin’s history and how it has changed over time. It is bullish in comparison to the 2017 outlook. Morgan Stanley analysts also discuss the recent stable coin trend as well as the reactions of investors and banks towards Bitcoin. The report also discusses the drawbacks to Bitcoin, including its energy consumption and lack of regulation.
Looking Forward
Morgan Stanley recently began offering Bitcoin derivative trading. The firm began offering Bitcoin swap trading tied with futures contracts. James Gorman, the CEO of the firm, stated earlier this year that clients could have access to a trading desk that specializes in digital assets and derivatives.
Morgan Stanley was reported to have compared Bitcoin to Nasdaq, although it moved “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 movement, which began in late 2017, saw several industry giants launch their own stable-coins. This trend experienced a boom during the summer 2018. Stable-coins, cryptocurrencies that are designed to reduce volatility in price, are often backed by fiat currencies like the U.S. Dollar, commodities, or other crypto assets.
The report highlights how stable-coins were introduced to the crypto market. This led to BTC trading volumes taking a significant hit even though Bitcoin still accounts for around 54% of the total market valuation. Analysts believe this contributed to the current bear market.
Beware of Regulators
The report also included a section for regulators to make comments. All the major central banks around the world are now open to digital currencies, with the exception of Sweden which has yet to decide on an eKrono.
William Hinman, the head of the Division of Corporate Finance at the SEC was mentioned in the report. He stated that it was important to establish client expectations and classify cryptocurrencies.
Morgan Stanley also recorded Christopher Giancarlo as the chairman of CFTC as being concerned about crypto’s potential. They have a bright future. While I doubt they will ever be able to compete with the dollar or other hard currencies in the future, there is a large segment of the world that is really hungry for functioning currencies that can’t be found in their local currencies. There are 140 countries around the world that have a currency. Two-thirds of these currencies aren’t worth the polymer or paper they’re printed on. Those countries rely on hard currency. Some of these problems may be solved by Bitcoin or another cryptocurrency.
Changing Thesis
Morgan Stanley’s report highlights crypto’s “rapidly evolving thesis.” It charts the evolution of Bitcoin from various roles such as digital cash, a new fundraising mechanism and a method to store value to its current form as an “new institutional investment class.”
According to the report, 48 percent of Bitcoin funding comes from hedge funds. Venture capital is responsible for 48 percent of the total, while private equity accounts for the remaining 3 percent. Based investors, with China and Hong Kong coming in at a joint second at 9.1% and the U.K. at 3.3%. More than half of Bitcoin investments have been made from the U.S., finishing at third at 6.4%.
Closing Words
Morgan Stanley’s research division publishes regular reports on cryptocurrency. The last one, “Diversified Financials – Exploring global crypto regulations”, was published on Aug. 21. Morgan Stanley’s last report on Bitcoin was published in January 2018. The 2018 report’s bullish outlook could indicate an upcoming influx by institutional investors into Bitcoin investments in 2019.