Everyone was waiting for an ETF to get institutional money into cryptocurrencies, but as the wait gets longer and cryptocurrencies entering a sweet spot to buy after facing a good correction, the investment managers to the institutional monies are not being able to keep their hand off cryptos. In a latest attempt to infuse institutional monies into cryptos Morgan Stanley is planning to offer trading in complex derivatives, the Bitcoin Swaps
Giving investors synthetic exposure to the performance of Bitcoin
Morgan Stanley soon would be seen exposing its clients to the cryptocurrencies as according to a source familiar to the matter, has reported to Bloomberg that the US. based bank is planning to offer to trade in complex derivatives based on bitcoin. Morgan Stanley will deal in contracts that give investors synthetic exposure to the performance of Bitcoin, and the investors will be able to go long or short using the so-called price return swaps, and Morgan Stanley will charge a spread for each transaction.
By definition, A swap is a derivative contract through which two parties exchange financial instruments. These instruments can be almost anything, but most swaps involve cash flows based on a notional principal amount that both parties agree to. Usually, the principal does not change hands. What Morgan Stanley is trying to build is a swap based on the performance of Bitcoin.
If the source is to be believed the bank is already technically prepared to offer the Bitcoin swap trading and will launch once there is proven institutional client demand and after the completion of an internal approval process.
Crypto bells are ringing on the wall street
A couple of days back Citi, the New York-based bank had announced that it has come up with perhaps the most direct way to invest in cryptocurrencies without actually owning them. The bank has developed an instrument it’s calling a Digital Asset Receipt or DAR. It works much like an American Depository Receipt or ADR, which has been around for decades to give US investors a way to own foreign stocks that don’t otherwise trade on US exchanges. The foreign stock is held by a bank, which then issues the depository receipt.
In this case, the cryptocurrency is held by a custodian and the DAR is issued by Citigroup, the people said. The bank will watchfully inform the Depository Trust & Clearing Corp, a Wall Street middleman that provides clearing and settlement services, once it’s issued the receipt, one of the people said. That lends an important layer of legitimacy and gives investors a way to track the investment within a system that they’re already familiar with, the person added.
The institutional monies are waiting to enter the crypto markets but are still not coming in as they still wait for regulatory, security and liquidity measures to come in before this large chunk of money can enter. But now with these steps taken by wall street giants, one can be sure that cryptos will soon be flourished with institutional money.
Let’s see how do institutions respond to these crypto products. A few months should give us an idea of how do these things change the course of money into cryptos
Will these products be a larger money puller than the ETF? Do let us know your views on the same.
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Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.