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A “Paradigm Shift”: Morgan Stanley Issues Dollar Warning, But What Do Other Banks Think?

Last Updated January 16, 2024 12:17 PM
James Morales
Last Updated January 16, 2024 12:17 PM

Key Takeaways

  • Post-Bitcoin ETF approval, Morgan Stanley has highlighted the rising influence of digital assets in foreign exchange markets.
  • The bank’s head of digital assets Andrew Peel said Bitcoin and stablecoins could undermine the US dollar’s global dominance.
  • The chief investment officer of Goldman Sachs’ private wealth management arm has warned against investing in the new funds.

Following the launch of the first spot Bitcoin Exchange Traded Funds (ETFs) in the US, a string of high-profile bankers have weighed in on the development’s potential implications

Morgan Stanley’s head of digital assets, Andrew Peel, has highlighted the rising influence of Bitcoin in foreign exchange markets. Meanwhile, other banks have sought to either enable or discourage their customers from accessing crypto markets.

Morgan Stanley Highlights Digital Dedollarization Risk

Discussing the possible ramifications of the United States Securities and Exchange Commission (SEC)’s move to let ETFs invest in the Bitcoin spot market, Peel situated the development within global currency dynamics affecting the strength of the US dollar. 

Peel suggested Bitcoin might, one day, undermine the dollar’s current status as the go-to currency for international trade and central bank reserves. He said the SEC’s decision could bring about a “paradigm shift in the global perception and use of digital assets.”

He said that “ss the search by nation states for alternatives to the dollar continues,” cryptocurrencies “are fast developing into viable alternatives to traditional cash and in some cases, fiat currencies.” 

However, despite Bitcoin’s potential to usurp the greenback as the world’s reserve currency, Peel noted that the rising prominence of stablecoins could have the opposite effect. 

Today, tokens that are pegged to the US dollar account for the vast majority of all stablecoins. With over $125 billion of USDT, USDC and DAI currently in circulation, the combined market capitalization of the top three stablecoins alone is equivalent to the annual GDP of a small country. Meanwhile, the three most popular euro-pegged coins have a much lower circulating supply of just $270 million (€248 million).

From one perspective, global stablecoin adoption is accelerating dollarization, extending the currency’s reach into otherwise inaccessible economies. However, some analysts have raised concerns  that the trend could result in private money overshadowing fiat dollars. 

Although Peel said investors should understand the interplay between fiat currencies, stablecoins and other cryptocurrencies, overall, he is supportive of institutional crypto adoption. But other bankers have taken a far more critical stance.

Senior Goldman Sachs Banker Advises Against Crypto Investment 

Among crypto advocates, the approval of spot Bitcoin ETFs in the US has generally been hailed as a watershed moment. The decision helps establish digital assets as a serious investment class. 

On the other hand, Sharmin Mossavar-Rahmani, the chief investment officer at Goldman Sachs’ private wealth management arm, recently denounced crypto investing as little more than gambling. 

The banker said investing in digital assets like Bitcoin amounts to “total speculation.” He added: “It is not an investment and people should not be investing in cryptocurrencies, in Bitcoin, in the ETF, as part of an investment portfolio.”

Mossavar-Rahmani’s comments reflect a longstanding suspicion of cryptocurrencies that remains prevalent within traditional finance. They also highlight the difficult position anti-crypto financial advisors may find themselves in as demand for digital asset-based investment products rises.

Investment Gatekeepers Hesitate to Endorse Bitcoin ETFs

The average American investor accesses ETFs through intermediary advisors and brokers. Therefore, powerful brokerage firms could influence how much money ultimately flows into the new Bitcoin funds.

Vanguard, for example, has ruled out granting its customers access to Bitcoin ETFs, stating that “these products do not align with our offer focused on asset classes such as equities, bonds, and cash, which Vanguard views as the building blocks of a well-balanced, long-term investment portfolio.”

Meanwhile, Wells Fargo has said  its advisors will be able to invest in Bitcoin ETFs on behalf of their clients. They will, however, only do this when the request is made without prompting from a salesperson.

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