Adding Bitcoin-Related Derivatives

Bloomberg reports that Morgan Stanley has plans to begin offering trading of complex derivatives linked to Bitcoin. This information came from an unnamed source that Bloomberg indicates is highly familiar with the matter. This source asked to remain unnamed due to the private nature of the information.

According to the source, the bank will offer the expected trading abilities for synthetic exposure regarding Bitcoin performance. This includes the ability to use “price return swaps” to go either long or short. Fees for using this service will be in the typical manner for this type of swap trading, via a spread charged by Morgan Stanley.

Followers of cryptocurrency in the banking world may remember that Morgan Stanley CEO James Gorman previously indicated that the bank would not offer buying and selling of cryptocurrency. The recent information from the company’s insider is consistent with Gorman’s statement. Instead, investments will be via swaps connected with Bitcoin futures contracts.

The latest information indicates that Morgan Stanley already has the technical structure in place to begin offering the Bitcoin swap trading product. However, there is no indication that the launch will be anytime soon. Morgan Stanley representatives have not commented on the Bloomberg report. Additionally, the internal source indicated that before offering Bitcoin swap trading, Morgan Stanley will have to complete its standard internal process to approve the product and also need to see enough demand to justify offering the product.

Other Major Banks also Entering the Bitcoin World with Derivatives

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Morgan Stanley is certainly not the first bank that will offer Bitcoin swap trading. Citigroup Inc. and Goldman Sachs Group Inc. have recently indicated that they’re in the process of creating similar offerings.

Citigroup Inc. announced earlier this month that it’s working to develop a trading mechanism for cryptocurrencies, including Bitcoin. This mechanism involves digital asset receipts (DARs) that give investors the ability to trade by proxy instead of owning coins.

Goldman Sachs indicated in August that it was looking into offering custody for cryptocurrency funds. A spokesman told Bloomberg, “at this point we have not reached a conclusion on the scope of our digital asset offering.”

More recently, Martin Chavez, Goldman Sachs’s CFO, announced during the San Francisco TechCrunch Disrupt Conference that reports of the firm no longer looking into cryptocurrency trading were “fake news.” He went on to explain that Goldman Sachs is actively working to create a derivative product for cryptocurrency due to client demand, indicating that the company will be looking into “non-deliverable forwards” next.

There have also been indications that JPMorgan will enter the cryptocurrency world. Back in May, the company started exploring how it could work with clients to invest with crypto.

It seems likely that Morgan Stanley is just the latest large financial institution to begin exploring methods of offering cryptocurrency due to the growing demand from clients.