So far, this year has been marked by bad news for institutional investors interested in pursuing cryptocurrencies.
One of the most lauded and most highly anticipated crypto investment instruments, the crypto Exchange Traded Fund (ETF), has faced steady regulatory headwinds as the SEC continually rejects attempts to bring ETFs to market.
Since many crypto enthusiasts see institutional investment as the next frontier for crypto adoption, these setbacks are frustrating. However, that doesn’t mean that all opportunities for institutional investors are impossible.
In that regard, it’s been a big week for Bitcoin as a series of leaks reveal that major financial institutions, including Morgan Stanley and Citibank, are creating or developing investment products intended to provide their substantial customer base with access to digital assets.
Morgan Stanley is preparing a crypto product
This week, Bloomberg reported that Morgan Stanley is preparing an investment product that will provide their customers access to Bitcoin derivatives. Citing an anonymous source, Bloomberg contends that Morgan Stanley will provide customers with “synthetic exposure” to Bitcoin markets by enabling investors to take long or short positions on the digital currency.
In this way, Morgan Stanley is joining several other mainstream financial institutions striving to produce mechanisms for their clients to trade in Bitcoin without providing direct access to digital currencies. Bloomberg’s source notes that Morgan Stanley will charge spread fees to accommodate the inherent risks in brokering Bitcoin products.
Although the company hasn’t issued a formal statement on the plans, Bloomberg believes that Morgan Stanley is prepared to launch the product once client demand warrants its implementation.
Citibank is creating an ETF alternative
Earlier in the week, another financial juggernaut, Citibank, was rumored to be creating another Bitcoin-related product that would provide interested investors with access to the digital currency. The new product, first covered by Business Insider, is called a Digital Asset Receipt (DAR), and it bears some resemblance to the much-anticipated crypto ETF.
With a DAR, investors can gain exposure to Bitcoin without actually purchasing coins. Instead, consumers receive an asset receipt from Citigroup, which corresponds to the digital asset and serves as a functional investment in digital currencies.
This strategy is already widely implemented at Citibank, as the company uses it to provide its customers with access to foreign stocks, which are owned by the bank and extended to customers through depository receipts.
However, according to Business Insider’s source, Citigroup does not intend to own digital assets directly. Instead, Bitcoin will be held by a custodian with Citigroup providing the DAR.
In addition, Citigroup will report investments to the Depository Trust and Clearing Corp., a step that adds legitimacy to the process and buoys the likelihood that the bank’s product will stand up to regulatory scrutiny.
Taken together, it’s evident that financial institutions are committed to developing sound and safe investment products that provide their customers with access to cryptocurrencies. Morgan Stanley and Citibank are two of the most prominent brands in the financial industry, and their development of Bitcoin derived products adds credence to the idea that institutional investors are interested in digital currencies, as institutions are responding by creating products to satiate demand.
Other actions, like recent revelations that Coinbase is working to create a crypto ETF, indicate that, eventually, companies will launch legally-sound crypto products for mainstream investors.
Although these products aren't due for imminent release, these news can provide a level of encouragement and optimism in a year categorized by falling prices and growing skepticism about the long-term validity of Bitcoin and other cryptocurrencies.
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