The Breakdown - Morgan Stanley Is First Big Bank Offering Bitcoin to Wealthy Clients

Starting point is 00:00:00 Let's talk about the new pressure on competitors because my God, Morgan Stanley is about as big a brand as it comes and it just jumped into the pool. When it comes to an influence your peers perspective, this is not a toe dip. This is a running headfirst dive. I would love to be a fly on the wall of J.P. Morgan or Goldman or all these other competitors today, where bosses are picking up phones and demanding to hear the latest on their Bitcoin strategy and when it's going to be ready. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.com, Casper, and NEM, and produced and distributed by CoinDes. What's going on, guys? It is Wednesday, March 17th, Happy St. Paddies.

Starting point is 00:00:52 And today we have some breaking news. Morgan Stanley is going to be the first big bank to offer Bitcoin. coin for its wealthy clients. Can't wait to talk about that, but first let's do a very brief brief. First up on the brief, it is the Fed's Federal Open Market Committee meeting today. Right now, the market is getting nervous because they see the economy heating up and they just don't believe that the Fed is going to be able to keep interest rates at zero for as long as the Fed says they're going to. How that's showing up in the numbers is the 10-year Treasury is at its highest point in a year. The 30-year Treasury is its highest since 2019, growth stocks are down, and inflation expectations are the highest in 12 years. So then, what does the market want to hear out of this Fed meeting? To me, it seems like

Starting point is 00:01:41 they basically want more details. Powell has said over and over that they're staying the course, and he has pointed particularly to their employment goals and just how far they have to go before they reach them. But again, like I said, markets seem not to really believe that. And I think they want Chairman Powell to outline exactly the circumstances that would make the Fed change its tune and change its policies. Frankly, I'm not sure how much detail Powell is going to be willing to indulge right now when we're not actually in a crisis. We're just seeing stock prices that are finicky and sensitive to the fact that they might be extremely inflated. Next up on the brief today, let's talk about the E Toro SPAC. So special purpose acquisition companies are, of course,

Starting point is 00:02:22 one of the defining characteristics of markets over the last couple years, and there's been much speculation that we would see a trend to crypto spacks this year. So far, that's how it's playing out. Backed kicked it off a couple months ago with the announcement of a $2 billion spec, and E. Toro is now merging with FinTech Acquisition Corp 5. The new firm will have a combined value of $10.4 billion, and E Toro intends to have about $800 million in cash on hand after the acquisition. Now, the FinTech Acquisition SPAC is led not by a young firebrand like Chamath, but by Betsy Cohen, a 79-year-old badass who proves that age is a totally BS excuse for not understanding how the world is changing. And speaking of crypto in public markets, Coinbase's IPO is getting closer and closer. This is the combination of crypto and public markets that has everyone the most hyped.

Starting point is 00:03:16 And part of the reason that there is so much demand, not only for this Coinbase, deal, but also for these other SPACs, is the lack of other easy ways to get exposure to Bitcoin and crypto. There's no Bitcoin ETF in the U.S. for example. Slowly but surely, there is a public market crypto exposure basket that is being built. In fact, J.P. Morgan is building a debt instrument precisely around that. Anyway, Coinbase updated their S1A form and published it today, stating that they planned the resale of 114,850,769 shares of Class A common stock. It will be listed on NASDAQ as coin, and it is expected within weeks. Moreover, Bloomberg sees the valuation of this company near $100 billion when it goes live. On top of this, other exchanges are reported

Starting point is 00:04:03 to be considering public moves as well. A Fox business reporter said that Cracken is considering a public launch via IPO or SPAC in 2022. Jesse Powell of Cracken had said in a previous interview that they would consider funding, but not at lower than a $10 billion valuation. And when asked about the report by CoinDess, Cracken responded that if they did go public, it wouldn't be via SPAC, as they were, quote, too big for that. Looking for the best way to unlock your crypto's liquidity? nexo.io is exactly what you need. Borrow against your digital assets at just 5.9% APR.

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Starting point is 00:05:10 Casper provides the blockchain ecosystem with a solution that makes no compromises around decentralization, security, or performance. Learn more at casper.network. Hey guys, I'm excited to share that this week we have a special product launch sponsor. Symbol, the next-gen public blockchain from NEM, is here. Symbol from NEM is the connector between blockchain and business. It boasts enterprise-grade security and programmability, bringing cutting-edge technical features to projects at the heart of the new economy.

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Starting point is 00:06:18 I'm recording this about 35 minutes after the news went live, we are right fresh and we probably don't know all the details that we'll get today, but I wanted to get this to you as fast as I could. So let's talk about the details that we do know. First, and most importantly, this is a direct Bitcoin exposure. It's not just some proxy like the JP Morgan crypto exposure basket that I was talking about, or even Grayscale's Bitcoin Trust. Second, it is for their wealth management clients and a particular tier of their wealth management clients. individual clients have to have at least $2 million in assets held by the firm to qualify, while investment firms need to have at least $5 million.

Starting point is 00:07:00 In both cases, those accounts need to be six months old. And this is a crazy detail. Even for those that qualify, Morgan Stanley is limiting investments to up to 2.5% of an individual's total net worth. So they're actually capping how much you can invest, not just limiting who can invest. So let's talk about who the fund managers are. Two of the funds are led by Mike Novogratz and Galaxy Digital. I'm sure you guys are familiar with both Mike and Galaxy, but to get a sense of where Novo is right now on the Bitcoin space,

Starting point is 00:07:34 he tweeted yesterday, I bought more Bitcoin at 56,500, just in case anyone was wondering if I'm still bullish. Perhaps he was bullish because he knew that this news was breaking today. Now, the third fund, interestingly, is from Nidig and FS Investments. Nidig, as we've talked about, is on an absolute tear right now. Last week, they announced that they had raised $200 million, with investments coming from New York Life,

Starting point is 00:07:59 whose CEO also joined their board of directors, Soros, and, yep, you guessed it, Morgan Stanley. When they reported that $200 million round, they intimated that these investors were not just investors, but partners in larger Bitcoin initiatives as well, and that we'd be seeing the fruits of those partnerships soon. A week later, we've seen the first one, at least from Morgan Stanley. Now, what about size of investment? I told you about the 2.5% total net worth cap, but in terms of

Starting point is 00:08:29 raw numbers, one of the Galaxy funds and the Nidig fund have minimum investments of $25,000, while Galaxy's institutional Bitcoin fund has a $5 million minimum. Clients are anticipated to be able to make investments as early as next month, with the blocker being that the bank's financial advisors have to complete trainings tied to these funds first. So those are the details we have so far, and now I want to give a few reactions. To me, easily, the biggest part of this deal is that it is direct Bitcoin exposure. It isn't some weird proxy or a basket of stocks connected to it. It is real, honest to God, Satoshi's, and that is immediately differentiating.

Starting point is 00:09:11 Second, it is wild to me the restrictions around this. I'm not just talking about whether this is a product for their regular kind of retail clients or their wealth management clients. It makes sense to me from a conservative bank perspective that you're going to offer this to your highest net worth clients to start with because you feel like they have more risk tolerance. And plus, the retail investors are way ahead of the institutional investors when it comes to this whole area. In fact, one of the things that makes Bitcoin so phenomenal is that it's maybe the first time in history that retail has been able to front-run institutional investors. Either way, the restrictions that I'm talking about are these huge minimum holdings with the bank and capping the percentage of your net worth

Starting point is 00:09:52 that you can put into it. Now, to be clear, I don't expect a lot of clients who are buying Bitcoin through Morgan Stanley to have issue with that cap or even with the minimums. I also don't blame Morgan Stanley for being super conservative with their first offering. This is one of the most significant and influential firms in the world with $4 trillion in client assets in their wealth management practice. And frankly, they're already making the comparatively bold step of offering actual direct Bitcoin access. So I'm not going to gripe overly much about what they had to do in order to get compliance and legal comfortable with it. Still, it is a little funny to think about a technology where one of the absolute hallmarks is it being totally permissionless, all of a sudden

Starting point is 00:10:36 being forced into these strict restrictions and controls. There's something very ironic about extremely wealthy people facing strict, externally imposed limits on their financial behavior when you and me can go ape into this thing any damn time we please. Then again, most of the listeners to this podcast aren't banking with Morgan Stanley. And if we do want to invite new people into this industry, if this is what it takes and the upshot is that they get actual Satoshis, I'm here for it. And yes, yes, I am clearly holding aside not your keys, not your coins for a minute. We're talking about gateway drugs. And the thing that I think is good about this gateway drug is that it's not synthetic Bitcoin,

Starting point is 00:11:15 even if it's not self-custodied Bitcoin. Third, let's talk about the new pressure on competitors, because my God, Morgan Stanley is about as big a brand as it comes, and it just jumped into the pool. Like I said, as much as I'm lamenting some of these restrictions, or I find them ironic, given how permissionless Bitcoin is, when it comes to a and influence your peers' perspective? This is not a toe dip. This is a running headfirst dive.

Starting point is 00:11:41 I would love to be a fly on the wall of J.P. Morgan or Goldman or all these other competitors today, where bosses are picking up phones and demanding to hear the latest on their Bitcoin strategy and when it's going to be ready. So for now, like I said, I wanted to get this news out to you as fast as I could. I'm sure we're going to be learning a lot more in the weeks to come. For now, I appreciate you listening. And until tomorrow, be safe and take care of each other. Please.

The Breakdown - Morgan Stanley Is First Big Bank Offering Bitcoin to Wealthy Clients

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