Morgan Stanley is set to launch a derivative product tied to the prices of Bitcoin. This new means for its clients to get exposure to Bitcoin will reportedly be launched once enough institutional client demand is met and upon finishing an internal approval process.
An anonymous person working at Morgan Stanley revealed to Bloomberg on Sept. 13 that the multinational investment bank and institutional service company will soon launch a Bitcoin derivative product aimed at offering traders and investors synthetic exposure to the leading cryptocurrency’s performance.
The proposed derivative product will work as price return swaps allowing market participants to take a short or long position on trades. The New York based bank will be charging a spread for each transaction.
What Are Swaps?
According to Investopedia, a swap could be defined as a derivative contract that allows two transacting parties to exchange financial instruments. Those financial instruments could be anything from cash flows, interest rates, derivatives or securities such as stocks or bonds. Even though different types of swaps exist, interest rate swaps remain the most commonly used kind.
At the moment, it still remains unclear what exact type of Bitcoin swaps Morgan Stanley is planning to offer and how would it work. However, the same source confirmed to Bloomberg that the product would be based on Bitcoin futures contracts, not on physical Bitcoins.
Furthermore, the leading US investment bank is believed to be technically ready to launch the product once enough demand at the institutional level is met and once it clears an internal validation process of the product. As of press time, Morgan Stanley hasn’t yet released any comment or official statement on both the alleged initiative and the spread of the news.
Derivatives as the Safest Way to Grant Exposure to Cryptocurrencies Among Wall Street Banks
Morgan Stanley is yet another Wall Street guru that aims to get into the cryptocurrency market. In fact, according to Business Insider, Citigroup recently created a financial instrument known as Digital Asset Receipt (DAR) allowing clients to get exposure to Bitcoin. The DAR works the same way as an American depository receipt allowing US investors to own foreign stocks not listed on American exchanges. It is also believed to be the most straightforward way for clients to invest in cryptocurrencies without having to actually own them.
Furthermore, Goldman Sachs’ Chief Financial Officer Michael Chavez denied to CNBC last week reports that the bank was ditching its plans to open a cryptocurrency trading desk. The “fake news” has caused the market to slide, with major cryptocurrencies recording around 5% to 15% price losses in the few hours following its spread. In fact, Chavez affirmed that Goldman Sachs is still working on a type of derivative for Bitcoin in response to its clients’ demand. Moreover, the bank is also considering to launch a custody service for the safe storage of crypto assets for institutional clients, reported Investopedia on Aug. 7.