A bitcoin rally has been in full swing since the last quarter of 2020, but unlike previous cycles, large financial institutions are paying closer attention.
Morgan Stanley is no exception.
In a recent interview with David Nage, principle at crypto investment firm Arca, Morgan Stanley digital asset markets head Andrew Peel outlined the bank's crypto journey. Peel, who joined the firm in 2018, said Morgan Stanley — best-known for its financial advisory and investment banking businesses — explored how it could offer clients a swap product based on bitcoin futures. Indeed, Bloomberg reported in September 2018 that the firm would offer trading in derivatives tied to crypto.
Peel told Nage:
"I was brought in actually 2018 — initial mandate was to oversee the launch of a swap-based product linked to CME and Cboe futures on bitcoin, discussed the view that bitcoin and crypto, specifically, would become more of an institutional asset class and discussed some of those expectations for how this asset class might evolve just at the end of the retail frenzy in 2017."
"Fortunately for me at the time, the senior management at Morgan Stanley had some vision that this space, not just bitcoin, but the broader digital asset marketplace could become a topic which evolves to be something which we needed to have some expertise in," he added.
In September 2017, Morgan Stanley CEO James Gorman was among the few Wall Street chiefs defending bitcoin. At the time, he said that the cryptocurrency was "more than just a fad."
Ultimately, Morgan Stanley didn't go live with the swap product but held a number of client discussions about it. Peel told Nage that the firm has seen more "significant" interest in bitcoin from traditional financial services world since the end of 2020.
"I think it is definitely correlated with spot price and market activity in general," Peel said. "Interest and focus is a function of the price action."
As for what's happening now, Morgan Stanley is engaging with regulated European exchanges about how smart contracts and distributed ledger technology can automate certain trading processes and structure certain products, according to a source familiar with the bank's operations.
Peel alluded to this in his conversation with Nage:
"Since 2018, there's been a large focus of traditional financial service infrastructure players the evolution of financial market infrastructure. So, I've been involved with some of the larger European exchange initiatives which are looking to use DLT, smart-contracts, automated processes of certain life cycle events for products. The ability to implement the developing crypto world functionality into traditional financial infrastructure."
Unlike other large banks — including the likes of Goldman Sachs and JPMorgan — Morgan Stanley is not actively exploring crypto custody, another source said.
In an opinion piece in the Financial Times in early December, Ruchir Sharma, Morgan Stanley's investment management chief global strategist, wrote that bitcoin is "starting to make progress on its ambitions to replace the dollar as a medium exchange." Ruchir works in the firm's investment management arm, whereas Peel reports to sales and trading.
"Throughout 2020 we really saw a large evolution of the space in terms of significant players, macro-legends if you will, obviously coming out to disclose their support for bitcoin as an inflation hedge," Peel said.
This report has been updated for clarity.
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