October 31st 2018, Morgan Stanley released report to update its “Bitcoin Decrypted: A Brief Teach-In and Implications”, a report that takes the overall crypto market and makes comparisons in the different aspects of the industry. The banking giant had their research department delve into the participation into the cryptocurrency ecosystem by institutional investors and the results are showing a steady increase.
The report detailed how Bitcoin is seen as “digital cash”, which investors can now get behind, as well as solving many of the issues plaguing the financial industry.
The brief covers the many faults of the cryptocurrency ecosystem as well, claiming that one of the main virtues of digital assets, taking the power of one’s finances from central authorities, stating “that having a permanent record of transaction eliminates the anonymity.”
The initial coin offering (ICO) scams that lead to millions of dollars being lost have also been covered:
“WSJ flagged 271 ICOs, which cumulatively raised over $1bn, for having plagiarized investment documents, missing/fake executive teams, etc. Investors have claimed $273mn of losses in these projects.”
Covering the institutional investment section, the report broke down the many factors that have lead to growth in the area. Taken from the report:
“Fidelity Digital Asset Services: Crypto trading and storage service
• Bain Capital: Led $15M Series B in Seed Cx Institutional Trading Platform
• Genesis Trading: Has lent more than $500M in cryptos since March to institutions–$130M outstanding now
• Goldman Sachs & Galaxy Digital (Novogratz crypto bank): Invest part of $58.5M round in BitGo (crypto
• SETL: Granted license by France to operate CSD
• Vertex: Invests in Binance for a Singapore-based crypto exchange
• Coinbase: Raises $500M at $8B valuation to be crypto’s Charles Schwab/Fidelity/Nasdaq
• Gemini Trust: Hires Nasdaq to conduct market surveillance”
However, even though some of the largest companies and brokers are getting into the nascent industry, not every institutional investor is ready to adopt the new currency type. The main reasons being the risk involved in an underdeveloped regulation, a lack of a custodianship solution to store digital assets as well as private keys and the fact that the FOMO has been ingrained yet due to a lack of more financial institutions not being involved.
The report did mention that stablecoins, 1:1 USD pegged cryptocurrencies such as Tether (USDT), are quickly eating into Bitcoins trading volume. This is due to many exchanges only offering crypto-to-crypto services and not crypto-to-fiat. The exchanges generally avoid these pairs as they require going through a bank which charges a higher fee.
While the sixty-five page report covers many aspects of the cryptocurrency sector, a final take away is that institutional investors are coming into the fold, and this may raise the market out of the slumps.