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Bitcoin Needs Regulation to Boom: Morgan Stanley

Last Updated March 4, 2021 4:57 PM
Samburaj Das
Last Updated March 4, 2021 4:57 PM

Investment bank Morgan Stanley sees bitcoin to be dependent on governments’ acceptance to really take off, at a time when the cryptocurrency tripled its value since the turn of the year.

In a report titled 43-page whitepaper titled ‘Blockchain: Unchained?”, Morgan Stanley isn’t entirely clear on determining just why bitcoin has been soaring lately. The whitepaper, released Tuesday, was penned by Wall Street analyst James Faucette  and his colleagues at Morgan Stanley who looked into the progression of bitcoin and blockchain technology over a 12-month period.

CCN.com was unable to get that report, for now. They aren’t distributed publicly. However, investment publication Barron’s  and Bloomberg  got to review it and highlighted some interesting takeaways from the whitepaper.

‘We’ve Been Getting Calls About Bitcoin’

“The rapid appreciation of cryptocurrencies has elicited many inbound phone calls to both our banks and tech teams,” the investment firm revealed.

In trying to figure out why bitcoin has gone meteoric of late, an excerpt from the report read:

Possible explanations include investors in search of uncorrelated risk assets and technologists looking for incremental security. But government acceptance would be required for this to further accelerate, the price of which is regulation.

So, Morgan Stanley is striking a cautious note despite bitcoin’s recent booms. Regulation, and, by extension, the government’s acknowledgment is what’s needed for the cryptocurrency to really take off and hit the mainstream, according to the investment bank.

Looking into Price Factors

The authors cite Asia’s increasing appetite for bitcoin as a significant factor behind the cryptocurrency’s growth in value. “China. Up until the last few days, a disproportionate share of Bitcoin mining was taking place in China (where there is cheap access to servers and cheap electricity),” they noted, pointing to the crackdown led by China’s central bank this year to curb the outflow of money in China.

The People’s Bank of China (PBoC) has impacted bitcoin prices for much of Q1 2017, a time when China’s bitcoin trading market was the largest in the world. The central bank’s roundabout grip on bitcoin prices has waned in recent months and no longer holds the influence it once had.

“Bitcoin appreciation seems to have been heavily driven in recent months by increased buying from Korea and Japan,” the report read. “In Japan, the recent legalization of Bitcoin has led to an increase in activity, including the recent opening of new Bitcoin exchanges. In Korea, however, there is not a clear explanation for the surge.”

What about Ethereum and Ripple? The authors aren’t certain. It’s “Not clear why cryptocurrencies are appreciating so rapidly (apart from the appreciation itself drawing in more speculation against a potentially inefficient ability to sell).,” they wrote, adding: “Rapid appreciation of cryptocurrencies is encouraging speculative formation of new currencies.”

“No Use Cases for Digital Currencies”

“Many of these new currencies don’t actually have use cases yet, but are intended to be exchange mediums for everything from virtual goods in games to banking mechanisms for products like marijuana where legal implications are not yet fully clear,” they further wrote. “ICOs are funded with existing cryptocurrencies, hence driving an appreciation circle—e.g., to support/invest in a new currency, one must buy and trade an existing cryptocurrency.”

Blockchain Technology is “Lacking a Killer App”

Bitcoins’ runaway price tear aside, the cryptocurrency is the most visible, functional implementation of decentralization and blockchain technology. “Bitcoin is the well-known cybercurrency that bought all of this [blockchain technology] to our attention, said Apple co-founder Steve Wozniak during a recent public talk.

Despite bitcoin’s rise in prominence, the analysts and Morgan Stanley do not see a “killer app” for blockchain technology in finance.

“We are now firmly in the proof-of-concept phase of development,” they authors wrote.

They further added that regulators are involved in the blockchain space, keeping a keen and close eye on developments. Inexplicably, they added:

Some have suggested privacy could be improved. Regulators are looking to have a master key so all transactions are visible to them.

CCN.com will update this story upon acquiring the report.

Featured image from Shutterstock.