As reported by Bloomberg, Morgan Stanley is planning to offer derivative trading tied to Bitcoin. This follows efforts by CitiGroup and other major banks entering the cryptocurrency space with their own custodial and trading services.
Morgan Stanley plans to give investors the opportunity to trade derivatives; in other words, investors will be able to go long or short with the help of price return swaps. Each transaction will be charged by Morgan Stanley. However, Morgan Stanley declined to comment on the supposed leak by an “insider” in the firm.
Morgan Stanley is one of many major Wall St. banks who have been pushing with a new way to trade cryptocurrencies among them. In many ways Morgan Stanley is following on the promise made by Chief Executive Officer James Gorman – he said earlier this year that Morgan Stanley would not allow any of its customers to directly purchase cryptocurrencies. Instead, he said, they would offer derivatives tied to the digital currency, which seems to match the report released today.
Morgan Stanley also hired a head of digital asset markets, Andrew Peel from Credit Suisse Group AG, just this past June. Peel is said to report to Morgan Stanley’s global head of equities trading. Overall, it seems that Morgan Stanley is entering the cryptocurrency space, albeit discreetly since nothing has been made public yet.
Overall it makes sense – as Wall St. banks have been expanding into the cryptocurrency space, there is the growing question over which one will be the “first” commercially-successful one. However, first proper custodian services need to be implemented to allow these large banks and firms to properly hold cryptocurrencies. And, as of now, this simply does not exist although according to reports, Goldman Sachs is looking to expand into this much-needed niche for major banks shortly.
Although Bitcoin lost over half of its value this year, behind-the-scenes the necessary infrastructure is being built for large players to take hold of this still young market. There is a growing concern, however, that currently the regulatory framework prevents many of these larger firms from getting involved due to ambiguities in the existing laws. Ultimately, the SEC will have to directly rule on the nature of cryptocurrencies and whether or not they are a separate class of assets entirely before this is completely sorted out.
Regardless, Morgan Stanley’s discrete entry into cryptocurrency space should be welcomed as it joins a wide array of major institutions and banks who have shown interest in cryptocurrencies, especially Bitcoin.