Morgan Stanley's Oldenburg: Bitcoin on U.S. bank balance sheets is coming, just not yet

Morgan Stanley expects bitcoin to reach U.S. bank balance sheets, though key hurdles remain, according to Amy Oldenburg, the bank’s head of digital asset strategy.

Speaking at the Bitcoin Conference in Las Vegas, Oldenburg, who was appointed new head of digital-asset strategy this year, outlined how the firm is laying the groundwork for the expansion of its digital asset business as client demand builds.

"It's been many years that we've been involved in the broader digital asset space the regulatory environment has been more supportive for us doing that", Oldenburg said.

Oldenburg, who will be speaking at CoinDesk's Consensus Miami conference this week, also said that U.S. banks may eventually hold bitcoin on their own balance sheets. However, she pointed to several barriers, such as the Federal Reserve, Basel rules and the need for multiple global regulators, before a bank of Morgan Stanley's scale could start putting bitcoin on its balance sheet.

This isn't the first time a banking giant has said that banks will eventually push further into the digital asset sector. BNY CEO Robin Vince said in March that large financial institutions will drive the next phase of crypto adoption by serving as a bridge between traditional finance and digital assets. Although the banks first need regulatory clarity before going all-in on the sector.

However, Morgan Stanley isn't standing still and has already started its push into the digital asset space, Oldenburg said. The banking giant recently launched MSBT, a bitcoin-backed exchange-traded product and the first of its kind from a U.S.-chartered bank. The product drew more than $100 million in its first six days of trading.

What made those inflows particularly striking is that they came entirely from self-directed clients, Morgan Stanley's own financial advisors hadn't even begun offering the product yet, Oldenburg said.

"All of that was self-directed, it was not even available in advisory on the wealth platform," she said. This dynamic shows that there is significant demand for such products from clients.

Oldenburg said that there is a significant gap between what the advisors are offering clients and where demand lies. While Morgan Stanley recommends 2%-4% bitcoin allocation to clients, the slow adoption among advisors is due to an education problem, Oldenburg said. She also noted that 80% of ETP exposure on the wealth platform is self-directed and that the bank has launched internal training programs to bring financial advisors up to speed.