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Morgan Stanley’s wealth management group has made a new case for cryptocurrencies. According to their latest forecast, intangible assets are an evolving investable asset class that has hit a “threshold.”
The analysts, led by Morgan Stanley’s Chief Investment Officer Lisa Shalett and Executive Director Denny Galindo, warned that any investment in cryptocurrencies is speculative.
However, both Shalett and Galindo believed that assets such as Bitcoin represented yet another significant step in the direction of slow embrace rather than outright rejection.
The authors explained that for “speculative investment opportunities to rise” to the level of an “investable asset class” (one that can especially play a role in diversified portfolios) would require “transformational progress” on both sides of market supply and demand. The report pointed out that:
“A firming regulatory framework, deepening liquidity, availability of products, and growing investor interest—especially among institutional investors—have coalesced.”
Morgan Stanley urged investors to “educate themselves” before determining how and when to invest in crypto-assets. Given the risks, the authors advocate getting exposures in limited, highly diversified positions, “similar to how one would view venture capital investing.” Furthermore, the authors wrote:
“Our initial modeling, replicated in spirit by a recently published CFA Institute study, suggests diversification benefits from the low correlation of cryptocurrency to other assets and that Sharpe ratio improvements can be achieved with positions no greater than 2.5%.”
Morgan Stanley executives stated that they are still not persuaded because they think coin trading is in its infancy, as follows:
“Issues around finding true price discovery and best execution are still to be addressed.”
The authors recommended that “qualified investors” who are willing to gain exposure begin with publicly traded securities that are “multiasset” and gain access to opportunities through “venture capital/private equity investing in the blockchain ecosystem.”
In related news, the bank advised its financial advisers in an internal memo that it would launch access to three accounts, enabling its clients to buy bitcoin. Two of the three funds on sale are from Galaxy Digital, with the third being a “joint venture from wealth manager FS Investments and cryptocurrency firm NYDIG.”
Mike Novogratz, from Galaxy Digital, said: