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- By Margaret Moran
In an internal memo Wednesday, investment bank Morgan Stanley (NYSE:MS) told financial advisors that it is launching access to three funds that enable ownership of bitcoin for its wealth management clients: two from crypto firm Galaxy Digital and one from a joint effort between asset manager FS Investments and bitcoin company NYDIG.
This would mark the first time a U.S. bank major has offered clients access to bitcoin funds, and even though it is only offering stakes in the funds to wealthy individuals who have at least $2 million in assets with the bank and investment firms with at least $5 million deposited, this still represents a big step forward towards the acceptance of bitcoin and other cryptocurrencies as an asset class.
Big banks' hesitation
Big banks are not big fans of bitcoin for a number of reasons. For one, some investors will deposit huge amounts of money only to wire it right back out to a wallet or brokerage that will convert it to bitcoin or another cryptocurrency. These in-and-out transactions don't really benefit the bank and could conceivably be used to fund criminal activity as blockchain transactions are more difficult to track than card or wire purchases. Additionally, the historical volatility of cryptocurrencies makes it incredibly risky as an investment vehicle.
However, for banks, all other concerns pale in comparison to the risk posed by the very purpose of cryptocurrencies, which is to provide a decentralized digital currency using a peer-to-peer network without a central bank or any other intermediary.
Banks have long been (and still are) the go-to intermediaries of financial and capital markets, so moving transactions away from them and to the blockchain would basically take away part of their income. Relying on the simple model of safely storing and paying interest on deposits while issuing out those same deposits again as loans to collect higher interest, the traditional banking system has had a growing monopoly on financial transactions for centuries.
Fintech innovations have the potential to basically allow anyone to be their own bank using the peer-to-peer network, relying on fingerprint, retinal scan or even more complex security measures such as cold storage wallets to store funds. In this kind of system, banks would not be needed, and the more people that can access this system, the less funds banks will be able to leverage for their own profits.