Far from being “rat poison squared” – a term used by Warren Buffet to describe Bitcoin – in a “surprising” turn of events, cryptocurrencies have now emerged as an institutional asset class in their own right, according to a rather bullish report by banking giant Morgan Stanley.

In an update to a previously published report, titled “Update: Bitcoin, Cryptocurrencies and Blockchain”, Morgan Stanley’s research department has touched on a variety of crypto-related topics; here are the main highlights:

Influx of Institutional Investment in Crypto Industry

Referring to the “rapidly morphing thesis of Bitcoin”, the report states that BTC and its peers have gone from merely serving as “digital cash” from 2009-2016 and an “incumbent financial system antidote”/“replacement payment system” from 2010-2017, to a “new institutional investment class” from 2017 onwards.

The report notes that there has been an influx of institutional money in the crypto space, with the number of institutional investors rising while the number of retail investors remains stationary. There has been a surge in the number of crypto-tied futures products and crypto-related funds – according to Morgan Stanley’s researchers, the amount of crypto currently being held by hedge funds, venture capital firms, and private equity firms comes up to a total of $7.11 billion.

In addition, the report points out that big players have also forayed into the crypto space, mentioning examples such as Coinbase’s recent fundraising round and $8 billion valuation, massive investments by big players such as Goldman Sachs and Galaxy Digital in BitGo and Binance, and Fidelity’s digital asset services. Crypto companies are also actively collaborating with institutions – e.g. the Winklevoss twins’ Gemini Trust bringing Nasdaq on board to conduct market research.

Despite these positive developments, the report noted that there are currently three key factors holding back further institutional investment: regulatory uncertainty, the absence of big/prominent financial institutions and asset managers in the space, and the lack of a reputable custodian solution.

The Rise of the Stablecoins

The report also touches on the trend of stablecoins, which is another interesting development in the crypto space. Stablecoins, as opposed to regular cryptocurrencies, are backed by assets such as fiat currencies, or other cryptocurrencies, and resultantly exhibit very low volatility (hence the name). According to the Morgan Stanley report, the emergence of stablecoins has contributed to the current bear market by diverging investments away from volatility digital assets like Bitcoin.

ICOs Down, STOs Growing in Popularity

Owing to the regulatory crackdown on the cryptocurrency market, and the subsequent bear market that has followed, initial coin offerings (ICOs) – an immensely popular form of crowdfunding for startups and new projects – have dwindled and are now failing (although analysts believe that they are unlikely to drop to zero). According to the report, with ICOs being forced to liquidate their funds, the market is displaying a move towards security token offerings (STOs). However, the regulatory environment is still not mature enough for security token offerings and their subsequent listings on exchanges.

Regulators’ Responses

The report also discusses regulators’ statements on digital currencies, observing that while they do seem to be warming up to crypto, they remain somewhat uneasy and stress the requirement for appropriately classifying cryptocurrencies and developing a clear and solid regulatory framework which will ensure that crypto can be traded safely and within legal limits.

The report also highlights CFTC chairman Christopher Giancarlo’s bullish stance on cryptocurrencies:

“I personally think that cryptocurrencies are here to stay. I think there is a future for them. I’m not sure they ever come to rival the dollar or other hard currencies, but there’s a whole section of the world that really is hungry for functioning currencies that they can’t find in their local currencies. There’s 140 countries in the world, every one of them has a currency. Probably two-thirds are not worth the polymer or the paper they’re written on, and those parts of the world rely on hard currencies. Bitcoin [or any other] cryptocurrency may solve some of the problems.”

Benefits of Blockchain

Morgan Stanley’s analysts also gave blockchain technology their stamp of approval, praising the technology for its various benefits and applications (the bank has also been using DLT itself, since 2016). According to the report, the technology lends itself well to areas such as cross-border transfers, B2B transactions, reinsurance, and shipping and trade finance. Banks across the world, such as ABN Amro, Deutsche Bank, Bank of America, Wells Fargo, JP Morgan, Citigroup, Goldman Sachs, and HSBC are currently testing the various use cases of blockchain tech.

However, the report also highlighted a number of drawbacks of blockchain tech and cryptocurrencies, such as electricity usage – the team’s analysts predict that the falling prices of mining equipment will lead to increased electricity usage. In addition, the report also claimed that AI and blockchain tech are “mortal enemies”, but failed to expound further on how and why the two are incompatible.

The Future of Cryptocurrencies

Overall, the Morgan Stanley report shows that Wall Street is warming up to crypto and this new asset class is here to stay. Morgan Stanley also has plans to offer clients Bitcoin swap trading, but will only do so after assessing institutional demand.

This report, coupled with recent and upcoming developments, such as crypto investments from university endowments like Yale and new Bitcoin futures contract by Bakkt, coming this December, reinforce the staying power of digital assets and we, at BitBull Capital, continue to make the most of these and future opportunities via active management strategies.

Disclosure:

As of the publication date of this report, BitBull Capital Management LLC and its affiliates (collectively “BitBull”), others that contributed research to this report and others that we have shared our research with (collectively, the “Investors”) may have long or short positions in and may own options on the token of the project covered herein and stand to realize gains in the event that the price of the token increases or decreases. Following publication of the report, the Investors may transact in the tokens of the project covered herein. All content in this report represent the opinions of BitBull. BitBull has obtained all information herein from sources they believe to be accurate and reliable. However, such information is presented “as is,” without warranty of any kind – whether express or implied.

This document is for informational purposes only and is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy, are based upon selected public market data, and reflect prevailing conditions and BitBull’s views as of this date, all of which are accordingly subject to change without notice. BitBull has no obligation to continue offering reports regarding the project. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances.

Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific token, and is not expressed as, or implied as, assessments of the quality of a token, a summary of past performance, or an actionable investment strategy for an investor.

This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment or token discussed herein.

The information contained in this document may include, or incorporate by reference, forward-looking statements, which would include any statements that are not statements of historical fact. These forward-looking statements may turn out to be wrong and can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond BitBull’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all tokens discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.

This blog may contain forward-looking statements that are based on BitBull’s experience and expectations about the markets in which the fund invests and operates. Forward-looking statements are sometimes indicated by words such as “anticipates,” “expects,” “believes,” “seeks,” “may,” “intends,” “plan,” “should,” “attempts,” “will,” “intended to,” “designed to,” “seeks to” or the negative of these terms or other similar expressions. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made. Forward-looking statements are not guarantees of future performance and are subject to many risks, uncertainties and assumptions that are difficult to predict. Actual results may differ, and such differences may be significant. Neither the fund nor BitBull Capital undertakes any obligation to revise or update any forward-looking statement for any reason, unless required by law. The forward-looking statements contained in these blogs are expressly qualified by this cautionary statement.

This blog is meant only to provide a broad overview for discussion purposes. While information used in these materials may have been obtained from various published and unpublished sources considered to be reliable, neither BitBull nor any of its affiliates guarantees its accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.

This blog does not constitute an offer to sell securities or a solicitation of an offer to buy or sell any securities.

No graph, chart, formula, or other device offered can, in and of itself, be used to determine which securities or assets to buy or sell or when to buy and sell assets or securities, and is not meant to assist any person in making investment decisions. We are not falsely promising to furnish reports or analysis free of charge to investors.

UP NEXT