Traditional Financial Institutions Are Running into the Cryptocurrency Market

Traditional Financial Institutions Set to Offer Cryptocurrency Asset Allocation Services

Morgan Stanley Set to Expand Bitcoin Fund Options

Morgan Stanley set to Expand Bitcoin Fund Options on June 16th. This will be the fourth Bitcoin fund which is linked to Morgan Stanley since the bank first embraced Bitcoin funds in March.
Such funds allow companies and people to get exposure to Bitcoin’s price without taking custody of the asset. The funds do that, more or less, by tracking the price of BTC and adding on a management fee—though some funds can be traded at a premium or discount compared to their underlying asset. From this year, more traditional financial institutions have started offering their clients asset allocation services in the cryptocurrency sector, and more and more investors are choosing to invest their money in crypto markets, especially large listed companies and ETFs.

Cryptocurrency Becoming an Integral Part of Funds

A survey by Intertrust, featuring 100 hedge fund chief financial officers globally found that executives will hold an average of 7.2 percent of their assets in cryptocurrencies in the next five years. Of these, the proportion of North American fund assets invested in cryptocurrencies is expected to be 10.6%, while funds in the UK and Europe are expected to be 6.8%. The sample of Intertrust surveys includes the fund’s chief financial officer, who manages an average of $7.2 billion in assets. The survey also showed that all executives surveyed in North America, Europe and the UK wanted at least 1% of their portfolios to be cryptocurrencies.

A Win-Win Situation

We believe that the growing number of institutional investors choosing to configure cryptocurrencies is a win-win situation.

Firstly, the crypto trading business will gradually become professionalized, and the crypto market will offer more innovative financial products. At the same time, they have brought longer-term, more sticky capital, as well as a larger pool of cryptocurrency liquidity. Increased allocation by large institutions and business participants will reduce volatility and contribute to the healthy development of the crypto market.

Secondly, their business in the traditional financial market is also facing certain bottlenecks, so by increasing cryptocurrencies as part of the allocation of funds can open up a new business, thereby better retaining customers. In addition, the FED (Federal Reserve System) continues to release inflation signals that cryptocurrencies in particular Bitcoin’s anti-inflation properties and the allocation of cryptocurrencies is a good option to balance yields with risk hedging.


Massive Movement of Commercial and Institutional Money toward Cryptocurrencies

Total Bitcoin Hold in Public Companies, Private Companies, Countries and Publicly Traded Products

According to BitcoinTreasuries, public companies, private companies, countries and publicly traded products currently hold more than 1.43 million BTCs, nearly 6.82% of the total BTC.
Source: BitcoinTreasuries

To date, 33 listed companies hold more than 200,000 Bitcoins, accounting for 0.953% of the total. MicroStrategy, the NASDAQ-listed company holds the most Bitcoins, at 92,079. And it was followed by Tesla and Galaxy Digital Holdings, which hold 42,902 and 16,400, respectively.

Source: BitcoinTreasuries
In addition, 11 ETFs hold more than 810,000 Bitcoins, accounts for 3.885% of the total. Grayscale Bitcoin Trust, a fund product owned by Grayscale Investments, holds the most bitcoins, at 654,600.
Source: BitcoinTreasuries
The nations that hold Bitcoin are Bulgaria and Ukraine, with a total of 259,870 bitcoins, 1.237% of the total.
Source: BitcoinTreasuries

The Impacts to the Traditional Monetary System

Such movement simply means that the cryptocurrency markets are increasingly gaining recognition by traditional monetary systems. It can also mean that the first effect of cryptocurrencies on the traditional monetary system is their integration into the monetary system.

Under the traditional monetary system, some developing as well as less developed countries lack independent legal tokens. This has to do with the fact that they subscribe to a dollarized economy, and their local central bank can not carry out macro-control due to inadequate independent monetary policies to facilitate such. Cryptocurrencies or fiat digital currencies can be introduced as a means of improving the national credit currency system. As we saw, on June 9th El Salvador voted by an “absolute majority” in favor of passing a bill to make Bitcoin the legal tender in the country which is the first country in history to formally designate Bitcoin as legal tender. What’s more, Panama, Nigeria, and other countries are also considering the proposal.

 

The second point is that people are choosing to move funds into the crypto market which has caused a hit to traditional financial markets on one hand, but on side of the coin, it is conducive to the stability of traditional financial markets.
There is no doubt that more and more retail investors are looking to the cryptocurrency market, where trading volumes have surged and stock and derivatives trading volumes have fallen sharply. According to the data from Jefferies, in April, the U.S. stock market turnover fell 27 % month-on-month and stock options fell 14%, which is the lowest level since October. The same trend is being withness by Deutsche Boerse Group.
Under the global large-scale economic stimulus plan, loose fiscal and monetary after Covid-19, the expansion of the cryptocurrency market has been conducive in the improvement and stability of the traditional monetary system to some extent. The cryptocurrency market was more than $2 trillion in May, especially against the backdrop of the Fed’s excesses triggering the dollar. No one wants to see the global financial crisis triggered by the severe bubble in the traditional financial market happen again just like in the year 2008. Unlimited quantitative easing and bailout checks from Uncle Sam could push the bubble of markets to an excessive point. Making a big & new market could be a good choice.

 

Finally, we believe that such a massive movement will force innovation and may lead to an upgrade of the traditional monetary systems. This effect is mainly reflected in the digitalization of the traditional monetary system, which is due to the prosperity of cryptocurrencies. Not only has this brought threats to the traditional monetary system but also created a new imagination space.
Central banks around the world have been actively studying the feasibility of digital currency issuance for a long time, and the legal digital currency of central banks has gradually developed from a conceptual level to a practical one. Currently, about 80% of central banks are conducting research on fiat digital currencies, about 40% have evolved from conceptual research to practical or proof-of-concept phases, and another 10 %have developed pilot projects. The People’s Bank of China has been launching digital currency research and testing since 2014 and will basically complete the technical and policy design of DC/EP by 2020.


The End

The cryptocurrency market welcomes all investors. What we know is that the U.S. Pension Plan offers ForUsAll in partnership with Coinbase, allowing clients to invest 5% of their portfolio assets in cryptocurrencies and that this product called Alt 401(k) has a wide selection of more than 50 cryptocurrencies. This reflects an investment trend in which investors from all classes agree that choosing cryptocurrencies as an asset allocation will yield high returns. And if U.S. citizens choose not to invest in encrypted assets in their pension plans, the average American would be at a structural disadvantage compared to large institutions and high-net-worth individuals. No matter what kind of financial instruments, cryptocurrency markets are always open 24/7.