Morgan Stanley Report: Cryptocurrencies Are New Institutional Asset Class

Institutional investors are increasingly entering the market for bitcoins and other cryptocurrencies — this is the conclusion of the report of the banking giant Morgan Stanley. While the number of retail investors remains at the same level, Bitcoin is turning into a “new institutional asset class”.

In a work dated October 31, titled “Deciphered Bitcoin: A Short Handbook and Conclusions,” experts at the research unit of a financial organization reviewed the dynamics of leading cryptocurrency over the past six months and pointed to characteristic trends.

In particular, the document emphasizes the high rate of “transformation” of an asset: defining Bitcoin as a “cryptocurrency” and noting that investors completely trust it, the authors recognize its rapid evolution. So, from a tool for solving problems of the modern financial system, it has already become a separate payment system and, ultimately, has become a new class of institutional investment.

According to experts, the way the transformation process took place was due to a number of factors, both positive and negative, the authors considered the influence of such aspects as the permanent entry in the register of all transactions, a number of hacker attacks, hard forks, new technologies that are cheaper than Bitcoin, market volatility and more.

The current definition given by the leading cryptocurrency group of researchers is “the new institutional asset class,” and, moreover, according to the findings of the report, this state of affairs persists for almost a year. Morgan Stanley says: the number of crypto active assets under management has grown significantly since January 2016 — currently hedge funds, as well as venture and private equity companies, keep crypto assets worth $7.11 billion.

Large financial institution increasingly support this development, as evidenced by the decision to create a custodial service made by Fidelity, investments collected by many companies in the industry, including the results of the recent investment round of Coinbase, and certain changes in the regulatory sphere — for example, approval that got the projects BitGo and Coinbase.

The authors of the report also point out three problems that have hitherto been encountered by clients who want to invest in crypto space: regulatory uncertainty, lack of regulated custodial solutions, and an insufficient number of large financial institutions in the space.

Trading With The Stable Coins Is Gaining Momentum

Specialists of the bank separately stop at the situation with stable coins, which are a kind of attempt to create a form of price stability. At the same time, they emphasize: you should pay attention to the growing role of such currencies — Bitcoin is increasingly trading against the dollar-linked Tether USDT asset. Half of all bitcoin trading at the moment is against another cryptocurrency, something that was traced last year, partly because many cryptocurrency exchanges do not accept fiat currencies, finally became a trend.

“The USDT has taken on an increasing share of the BTC trading volume as soon as the cryptocurrency rates began to decline. This happened because many exchanges trade only in the crypto-crypto mode, and not the crypto-Fiat. Trading Fiat requires passing through the banking sector, with a higher commission charged. When the bitcoin rate fell, as did the other coins, the owners who wanted to withdraw from the bitcoin investment had to go into another asset that was closer to the value of the US dollar” -The document says.

Morgan Stanley notes, crypto startups are now trying to take advantage of the trend, exchanges and other companies are developing their own stable coins as “part of the next wave of development.” The latest examples include the Gemini Exchange and the Circle startup.

However, the authors of the study do not expect to see all the “stable coins” in the past tested time: only those with “the lowest transaction costs, the highest liquidity, and the established regulatory structure” can be widely distributed.

Recall, Morgan Stanley announced the possibility of clearing bitcoin futures contracts and the potential development of other areas within the industry in January of this year.