Morgan Stanley goes big on BTC with $250 million position

Traditional finance keeps raising its Bitcoin exposure. Morgan Stanley’s recent buy of Grayscale Bitcoin shares would make the Wall Street stalwart the second-largest holder of GBTC.

While crypto enthusiasts tend to see themselves as opponents of traditional finance, one of the world’s biggest investment banks has been steadily increasing its holdings of (and exposure to) their favourite digital coin.

According to SEC filings released last week, Wall Street banking giant Morgan Stanley bought close to 6.5 million shares of Grayscale Bitcoin Trust (GBTC), spreading the purchases across a dozen of its funds. With shares trading at USD 38.46 at time of writing, that’s about USD 250 million in GBTC, making the investment bank the second-largest publicly-disclosed holder of GBTC.

In first place is investor Cathie Wood’s ARK Investment Management, which holds about 9 million GBTC shares.

While GBTC counts significant investments from many mainstream asset managers and hedge funds, investment banks have tended to shy away. Morgan Stanley first dipped its toes into crypto a few months ago when press reports revealed it had disclosed purchases of 28,000 GBTC shares in an SEC filing. This most recent combined round of GBTC buys blows that earlier holding out of the water.

What is GBTC, and what makes it attractive to mainstream finance?

Grayscale Bitcoin Trust is a trading instrument for investors who want exposure to BTC but don’t actually want to hold it in their portfolios.

It operates by tracking the price of its underlying asset, BTC. To buy in, investors need a minimum of USD 50,000, have to pay a 2 per cent fee, and can’t trade their shares for at least six months.

Interestingly, GBTC often trades out of sync with BTC’s price dips and spikes. Data from YCharts says it’s currently trading at a 14 per cent discount. That means investors have been taking positions in GBTC for less than the price of BTC. The difference, YCharts says, is caused by the six-month holding period.

Despite the disconnect, Grayscale has attracted more than USD 30 billion in assets under management to its BTC investment trust.

Morgan Stanley’s holdings are amortised across twelve of its mutual funds, essentially cash pools made up of retirement savings and typically invested in common securities like stocks and bonds.

Grayscale’s inclusion in their mutual funds isn’t likely to deliver savers into early retirement, however. GBTC holdings in Morgan’s Insight Fund, for example, comprise less than 0.35 per cent of the complete portfolio.

Ark Invest buys up 1 million shares

When Bitcoin dipped below $30,000 in June, ARK Invest, the investment firm headed by Cathie Wood, hoovered up USD 29 million GBTC shares. According to data on the firm’s website, the purchase was made through the ARK Next Generation Internet ETF (ARKW) managed fund.

The buy brought ARKW’s total GBTC holdings to 8.5 million shares worth USD 238.7 million. With a weight of 3.99%, GBTC is the fund’s seventh-largest holding, beat only by its positions in Twitter, Shopify, and Tesla.

Grayscale’s Grayscale Bitcoin Trust currently has more than USD 30 billion in assets under management, making it the firms oldest and biggest crypto fund.

In May, Ark made its first big crypto move with a purchase worth nearly USD 50 million in shares of cryptocurrency exchange Coinbase. Some 214,718 shares were purchased through its ARK Innovation Fund (ARKK). The fund now counts more than 3.7 million shares in the cryptocurrency exchange, for a total holding of more than USD 819 million.

The purchase made ARK Invest one of the first to buy a large chunk of Coinbase stock when it debuted on the Nasdaq in April.

Wood joined the board of blockchain technology platform Amun Holdings in May. She’s well known as a Bitcoin bull and has said it could reach USD 500,000 in the next decade. She’s described it as an entirely new asset class that could someday find itself among Yen and USD as one of the world’s reserve currencies.

Cardano joins the pool

Earlier in August, Grayscale added Cardano (AKA) to its large capitalisation cryptocurrency fund. Numbers from CoinGecko have Cardano at fifth place amongst the most valuable cryptos by market cap.

In a company press release, Grayscale said the altcoin would make up 4.27 per cent of the fund’s value. Most of the fund is still Bitcoin (67.46 per cent) and Ethereum (25.38 per cent), but the company said it wanted Cardano in the mix to diversify its portfolio. In April, Grayscale added Chainlink to the fund.

‘We are pleased to include Cardano in the Digital Large Cap Fund family,’ said Ed MacGee, Vice President of Finance at Grayscale. ‘We are working to make our fund diversified with assets that collectively account for 70 per cent of the full market in digital assets.’

Cardano is a blockchain platform designed to compete with Ethereum. It’s worth noting that Cardano’s founder, Charles Hoskinson, is also a co-founder of Ethereum, along with Vitalik Buterin. The project bills itself as the ‘first’ third-generation crypto. Similar to Ethereum, it offers a coding platform people can use to create smart contracts, which automate transactions and enable peer-to-peer services, a key component of DeFi.

The crypto’s native coin, AKA, has climbed the league table this year. It’s now in fifth place for most valuable crypto asset by market cap (currently USD 44 billion). Last week ADA was trading at USD 2.35, climbing 10 per cent in 24 hours, according to InvestorPlace.

Grayscale designs its crypto funds to let crypto-newbie investors gain exposure to cryptocurrency without actually owning them directly. The shares are pegged to the value of the cryptocurrencies underpinning each fund. It stops investors from learning about the purchase, custody, and storage of cryptocurrencies, which can be confusing for traditional investors.

The rest of Grayscale’s Digital Large Cap Fund is comprised of Litecoin and Bitcoin Cash (1.03%), two other assets in the top 20 biggest coins by market cap.