A new investor note penned by Morgan Stanley's wealth management unit, dated Wednesday, outlines a case for cryptocurrency as an emerging investable asset class.
The note's authors, Lisa Shalett and Denny Galindo, stress that their determination is a cautious one, noting that any investment in cryptocurrencies like bitcoin is a speculative one. Still, it represents another step in an ever-shifting viewpoint of the technology in the eyes of Wall Street from outright rejection to slow embrace.
As the two authors note in the piece's introduction:
"For speculative investment opportunities to rise to the level of an investable asset class that can play a role in diversified investment portfolios requires transformational progress on both the supply and demand sides. With cryptocurrency, we think that threshold is being reached. A firming regulatory framework, deepening liquidity, availability of products and growing investor interest—especially among institutional investors—have coalesced."
Among the specific recommendations is the pursuit of more information for the would-be investor. The authors note at the end of the piece that "our recommendation is that investors get educated and consider how and whether to get exposure to this bourgeoning asset class in their portfolio."
As for what form that exposure might look like, the Morgan Stanley report outlines during its executive summary:
"As with any asset class still in its speculative phase, there are a multitude of risks—some predictable, some identified and some yet to be uncovered. Such risk characteristics limit prudent advice to having exposures in small positions in a highly diversified form, akin to how one might approach venture capital investing. Our initial modeling, replicated in spirit by a recently published CFA Institute study, suggests diversification benefits from the low correlation of cryptocurrency to other assets and that Sharpe ratio improvements can be achieved with positions no greater than 2.5%. It is important to keep in mind that we are only in the top of the first inning."
Then, in the note's conclusion, the authors reiterate that they aren't at the point of recommending outright direct exposure in the form of owning any particular coin.
"From our vantage point, coin trading remains in its infancy. Issues around finding true price discovery and best execution are still to be addressed. We have yet to be convinced there and, therefore, advise clients to proceed with caution," they write, concluding:
"For those qualified* investors ready to gain exposure, we suggest starting with publicly traded products—preferably ones that are multiasset and potentially accessing the growth opportunities through a venture capital/private equity investment in the blockchain ecosystem."
The note's release comes more than a month after Bloomberg News reported that Counterpoint Global, a unit of Morgan Stanley Investment Management, is weighing whether to invest in bitcoin.