Morgan Stanley is the first big US bank to offer access to Bitcoin
Investment giant Morgan Stanley is the first major US bank to offer clients access to Bitcoin – but only if you have $2million in assets and ‘aggressive risk tolerance’
- The bank is offering clients with assets of more than $2 million the chance to cash in on the Bitcoin boom
- It’s the first time a major US financial institution has moved into cryptocurrency investments
- Morgan Stanley has warned Bitcoin is only for investors with an ‘aggressive risk tolerance’
- The move confirms the cryptocurrency’s transformation from dark web disruptor to a key player in global financial markets
Morgan Stanley is to become the first large bank in the United States to offer access to Bitcoin for its wealthiest clients.
In a sign of the cryptocurrency’s growing influence on the global financial system, the US investment giant told financial advisors that it plans to launch three new investment funds that enable ownership of Bitcoin, CNBC reported.
Morgan Stanley offered a caveat to prospective investors: only those with an ‘aggressive risk tolerance’ and at least $2 million in assets with the bank need apply.
Even then, the bank will only allow clients to invest 2.5% of their wealth.
The move came a month after motoring giant Tesla announced it would accept payment for its cars in Bitcoin.
Twitter chief Jack Dorsey and rap mogul Jay-Z have also said they are creating a fund aimed at making Bitcoin ‘the internet’s currency’.
On Wednesday, Bitcoin’s value hit $55,000 – down slightly on its all time high of $62,000 last week.
Bitcoin’s meteoric rise over the past 12 months saw its value briefly surpass $60,000 for the first time last week
Bitcoin was valued at just $0.08 in in 2020, and surged to more than $60,000 this month
Crypto firm Galaxy Digital is offering two of the Morgan Stanley funds, and the third is a joint effort from asset manager FS Investments and bitcoin company NYDIG.
Galaxy Digital’s founder Mike Novogratz Tweeted on Wednesday: ‘Galaxy is thrilled to partner with Morgan Stanley, the first US bank to offer Wealth Management clients access to bitcoin funds.’
Bitcoin’s value has risen more than tenfold since world economies went into lockdown at the start of the pandemic in March last year.
Galaxy Digital’s founder Mike Novogratz said he was ‘bullish’ on Bitcoin
Buoyed by record-low interest rates, its price surged as investors look for alternative ways to make money from their savings.
Bitcoin languished at about $5,000 at the start of the pandemic last year.
Towards the end of 2020 it began to grow in value before skyrocketing to more than $40,000 per unit in early January.
After a brief blip, its meteoric rise continued as it passed $50,000 on February 17 before reaching an all time record of $60,000 on March 13.
Morgan Stanley, one of the largest US investment firms, is offering clients the chance to invest in Bitcoin, but warns it’s only for those with an ‘aggressive risk tolerance’
WHAT IS BITCOIN AND HOW DOES IT WORK?
What are Bitcoins?
Bitcoin is a cryptocurrency – an online type of money which is created using computer code.
It was invented in 2009 by someone calling themselves Satoshi Nakamoto – a mysterious computer coder who has never been found or identified themselves.
Bitcoins are created without using middlemen – which means no banks take a fee when they are exchanged.
They are stored in what are called virtual wallets known as blockchains which keep track of your money.
One of the selling points is that it can be used to buy things anonymously.
However, this has left the currency open to criticism and calls for tighter regulation as terrorists and criminals have used to it traffic drugs and guns.
How are they created?
Bitcoins are created through a process known as ‘mining’ which involves computers solving difficult maths problems with a 64-digit solution.
Every time a new maths problem is solved a fresh Bitcoin is produced.
Some people create powerful computers for the sole purpose of creating Bitcoins, which can require a huge amount of energy to run.
But the number which can be produced are limited – meaning the currency should maintain a certain level of value.
Why are they popular?
Some people value Bitcoin because it is a form of currency which cuts out banking middlemen and the Government – a form of peer to peer currency exchange.
And all transactions are recorded publicly so it is very hard to counterfeit.
Its value surged in 2017 – beating the ‘tulip mania’ of the 17th Century and the dot com boom of the early 2000s to be the biggest bubble in history.
But the bubble appeared to have burst, and questions arose over what market there is for it long-term.
However, it has since boomed again, and in March 2021, surpassed the $60,000 mark for the fist time.
The rise in value and acceptance by major corporations has confirmed Bitcoin’s transformation from an instrument of the dark web, where purchases of illegal goods are conducted, to a powerful cog in the global economy.
The cryptocurrency has also benefited from some high profile endorsements.
In February, Tesla announced it had bought $1.5 billion worth of Bitcoin and would start accepting payments in the digital currency for its products ‘subject to applicable laws.’
The company, run by the world’s second richest man Elon Musk, who has a net wealth of $164 billion, said it had bought the cryptocurrency for ‘more flexibility to further diversify and maximize returns on our cash.’
Anthony Scaramucci, best known for his 11-day tenure as White House Communications Director under President Donald Trump, has also jumped on the Bitcoin bandwagon.
His investment firm Skybridge Capital launched its own Bitcoin fund for investors, and in January he claimed it could reach a value of $100,000 by the end of 2021.
And it’s not just the big corporate players and financial institutions who are reaping the rewards.
NFL player Russell Okung started putting half of his $13m salary from the Carolina Panthers into Bitcoin in December 2020.
Since then, the price of Bitcoin has risen from around $27,000 to more than $55,000 today, the returns from his canny investment making him one of the best-paid players in the league.
Miami Mayor Francis Suarez revealed in February the city was exploring the possibility of paying city employees in Bitcoin.
‘It’s part of a larger play if you will to position Miami as one of the most tech-forward cities in the country,’ Suarez told Reuters in February.
But climate experts have warned about the potentially catastrophic effect of Bitcoin on the environment.
The cryptocurrency is ‘mined’ by high-powered computers that continuously solve computational maths puzzles, the complexity of which means the processors require huge amounts of energy. While the machines use electricity, fossil fuel is a major category in electricity generation.
Bill Gates told the New York Times in an interview this month: ‘Bitcoin uses more electricity per transaction than any other method known to mankind.’
Studies have shown that the annual carbon emissions from the electricity generated to mine and process the cryptocurrency is equal to the amount emitted by whole countries, including New Zealand and Argentina, with the upper-bound estimate being higher than that of even the UK.
Bitcoin mining’s energy consumption also eclipses that of the world’s major tech companies that provide entertainment services, including the streaming giant Netflix as well as Apple, Facebook, Microsoft and Google combined – all of which also require huge amounts of energy to run their services.
Carolina Panthers offensive lineman Russell Okung began investing half of his $13m salary in Bitcoin in January. Since then its value has doubled
Bill Gates says Bitcoin is having an enormous impact on the environment due to the high levels of electricity required to mine it
By comparison, Google – the largest energy consumer of the tech giants – used 10 TWh in 2019. On March 13, Bitcoin was using 130.9 TWh (annualised). The UK’s electricity consumption is slightly more than 300 TWh a year.
Gates said he was keeping an open mind on Bitcoin, if it could clean up its processes.
‘If it’s green electricity and it’s not crowding out other uses, eventually, you know, maybe that’s OK.’
In a post on Medium, computational artist Memo Atken explained that ‘endless arrays of computers are sitting around in giant data-centre like mining farms around the world, doing nothing but generating random numbers all day every day, in the hopes of rewarding their owners.’
Despite the amount of time, effort and energy resources that goes into mining Bitcoin, some remain skeptical of its value, with Warren Buffet in 2020 blasting the currency, calling it ‘rat poison squared’.
‘Cryptocurrencies basically have no value and they don’t produce anything. They don’t reproduce, they can’t mail you a check, they can’t do anything, and what you hope is that somebody else comes along and pays you more money for them later on, but then that person’s got the problem. In terms of value: zero,’ he said in February last year, according to CNBC.
Pictured: A graph showing the amount of energy in terawatt hours (TWh) consumed by tech giants, electric vehicles and Bitcoin mining (lower, central and upper bounds). The bar second from right shows the current annual bitcoin consumption, that on March 3 was at a rate of 130.9 terawatt hours (TWh), roughly the same as New Zealand and Argentina
Pictured: The data centre of BitRiver company providing services for cryptocurrency mining in the city of Bratsk in Irkutsk Region, Russia March 2, 2021. The cryptocurrency is ‘mined’ by high-powered computers that solve computational maths puzzles, the complexity of which require huge amounts of energy
Pictured: A graph showing data from the Cambridge Bitcoin Electricity Consumption Index (CBECI) that shows the energy consumed by Bitcoin. Consumption increased to its highest ever levels towards the end of last year, with the rates continuing to rise into 2021. The CBECI calculates Bitcoin’s total energy consumption is currently between 40 and 445 annualised terawatt hours (TWh), with a central estimate (yellow line) of about 130 TWh
Other analysts and investors also remain skeptical of the patchily regulated and highly volatile digital asset, which is little used for commerce.
Analysts at JP Morgan said Bitcoin’s current prices were well above estimates of fair value.
Mainstream adoption increases bitcoin’s correlation with cyclical assets, which rise and fall with economic changes, in turn reducing benefits of diversifying into crypto, the investment bank said in a memo last month.
‘Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,’ JP Morgan said.
Bitcoin is an ‘economic side show,’ it added, calling innovation in financial technology and the growth of digital platforms into credit and payments ‘the real financial transformational story of the COVID-19 era.’
Other investors say Bitcoin’s volatility presents a hurdle for it to become a widespread means of payment.
As Bitcoin’s value has increased, so has its demand, with more people setting up Bitcoin miners in the hope that they will strike gold with the digital currency, potentially making thousands of pounds.
Bitcoins are traded via a decentralized registry system known as a blockchain, and found by so-called Bitcoin ‘miners’, who enable new Bitcoins to be created, but also to independently verify and record every transaction made with the currency.
More accurately, Bitcoins are the reward miners get for maintaining the transaction record accurately.
The mining works like a lottery that runs every ten minutes, with processing centers around the world racing to compile and submit this record of transactions in a way that is accepted by the system.
They also guess a random number, with the first to submit and record the correct number the winner of the prize, with this becoming the next block in the blockchain.
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