'Captive Audience' Could Drive Demand for Morgan Stanley's Bitcoin ETF: Bloomberg Analyst

In brief

• Morgan Stanley’s Bitcoin Trust is expected to debut as early as Wednesday after the SEC flashed a regulatory green light for the exchange-traded fund.
• The product faces an entrenched titan in BlackRock’s spot Bitcoin ETF, but Morgan Stanley is making things more competitive with the industry’s lowest fees.
• Meanwhile, one of the largest investment banks has an “army of advisors" that could bolster the product’s adoption, Bloomberg's Eric Balchunas said.

Morgan Stanley’s Bitcoin Trust is expected to face stiff competition when it debuts as early as Wednesday, but the exchange-traded fund is poised to enter a crowded field with distinct advantages, according to Bloomberg Senior ETF Analyst Eric Balchunas.

Through a combination of low fees and in-house distribution, Balchunas told Decrypt on Tuesday that the product being offered by the firm with $9.3 trillion in assets has a decent shot at pulling momentum away from BlackRock’s industry-leading alternative.

“It’s not going to knock off BlackRock and become the biggest, but I believe it will do well,” he said in reference to Morgan Stanley’s spot Bitcoin ETF. “What Morgan Stanley has going for it is a captive audience. It’s got its own army of advisors.”

With approximately 16,000 financial advisors on Morgan Stanley’s payroll, MSBT’s adoption will be bolstered by recommendations to clients, Balchunas said. He pointed out that Fidelity has some advisors—but “Morgan Stanley is on another level.”

Last year, Morgan Stanley's Global Investment Committee recommended allocating up to 4% of investors' portfolios to crypto for “opportunistic growth.” Among clients, those allocations could soon become further legitimized, with the SEC’s approval of MSBT’s debut on Tuesday.

Balchunas noted that Morgan Stanley’s “brand is huge,” standing in contrast with a handful of crypto asset managers that debuted their products alongside BlackRock.

As various issuers refined filings ahead of spot Bitcoin ETFs’ U.S. debut in 2024, Balchunas began using the term “Terrordome” to describe an intensely competitive environment for emerging issuers’ fees. He said Morgan Stanley hasn’t failed to show up.

ETFs charge what is known as an expense ratio, deducting fees from the fund’s assets to cover management, administrative, and operating costs. Morgan Stanley’s spot Bitcoin ETF is set to debut with a 0.14% expense ratio, undercutting BlackRock’s 0.25% fee for its iShares Bitcoin Trust ETF (IBIT).

Balchunas said Morgan Stanley’s target is lower than most legacy firms are willing to go, but the move likely has strategic elements when it comes to optics for advisors.

“You’ve got this product that’s cheap enough where [allocations] won't look like a conflict of interest,” he said. “They're literally picking the most fiduciary product if you go by fees alone.”

For a firm that’s “late to the party,” Balchunas noted that differentiation is crucial. He wagered that Morgan Stanley has done enough to separate its product from BlackRock’s, which has taken in $63.3 billion since its debut, according to CoinGlass.

Balchunas compared IBIT to basketball legend Michael Jordan. At this point, he said that BlackRock’s ETF has become entrenched as the undeniable leader in its field through robust liquidity and a massive options market.

Historically, the Grayscale Bitcoin Trust ETF’s fees have been the highest at 1.5%. Still, the asset manager debuted a “Mini” counterpart last year that has a 0.15% expense ratio, lower than almost every other alternative on the market.

The VanEck Bitcoin Trust currently charges no fees to investors. But that’s because the asset manager has implemented what is known as a fee waiver. Its expense ratio is set to remain at 0% until the end of July, unless it crosses $2.5 billion in assets beforehand. 

Decrypt has reached out to Morgan Stanley for comment.