Morgan Stanley anticipates that bitcoin will eventually be included on US bank balance sheets, although several key challenges need to be addressed, as stated by Amy Oldenburg, the bank's head of digital asset strategy. At the Bitcoin Conference in Las Vegas, Oldenburg outlined the firm's efforts to lay the groundwork for expanding its digital asset business in response to growing client demand. "The broader digital asset space has been an area of involvement for us for many years, and the regulatory environment has become more supportive", Oldenburg stated.
Oldenburg also mentioned that US banks may eventually hold bitcoin on their balance sheets, but highlighted several barriers, including the Federal Reserve, Basel rules, and the need for multiple global regulators, before a bank the size of Morgan Stanley could start including bitcoin in its balance sheet. This is not the first time a major banking institution has suggested that banks will eventually venture further into the digital asset sector.
BNY CEO Robin Vince stated in March that large financial institutions will drive the next phase of crypto adoption by serving as a bridge between traditional finance and digital assets, although regulatory clarity is needed before they can fully invest in the sector. Morgan Stanley is taking proactive steps to enter the digital asset space, according to Oldenburg. The bank recently launched MSBT, a bitcoin-backed exchange-traded product, which is the first of its kind from a US-chartered bank and attracted over $100 million in its first six days of trading. Notably, these inflows came entirely from self-directed clients, as Morgan Stanley's financial advisors had not yet begun offering the product, Oldenburg said.
"All of that was self-directed, it was not even available in advisory on the wealth platform", she stated. This trend indicates significant demand for such products from clients. Oldenburg noted that there is a substantial gap between the products advisors are offering and client demand.
While Morgan Stanley recommends a 2%-4% bitcoin allocation to clients, the slow adoption among advisors is due to a lack of education, Oldenburg said. She also pointed out that 80% of ETP exposure on the wealth platform is self-directed and that the bank has launched internal training programs to educate financial advisors.
The demand for regulated bitcoin exposure is well established, as evidenced by BlackRock's IBIT, which has amassed over $61 billion in assets and become the fastest-growing ETF in history since its launch in January 2024. Furthermore, Oldenburg stated that Morgan Stanley is pursuing an OCC digital trust charter, which would enable the bank to custody crypto directly and offer spot crypto trading on its wealth platform.
The MSBT product itself uses Coinbase and BNY Mellon as dual custodians.