Why U.S. Banks Still Can’t Hold Bitcoin Despite Massive Demand

Key Takeaways

• Morgan Stanley’s MSBT bitcoin ETP attracted over $100 million within its first week of availability
• The entire capital influx originated from self-directed investors before financial advisors began recommending the product
• Despite recommending 2–4% bitcoin portfolio allocations, Morgan Stanley faces an advisor education challenge slowing adoption
• The financial institution is seeking an OCC digital trust charter to enable direct crypto custody and spot market trading
• Federal Reserve policies, Basel capital frameworks, and international regulatory coordination continue blocking bitcoin from appearing on U.S. bank balance sheets

Morgan Stanley’s recently introduced bitcoin exchange-traded product accumulated over $100 million in capital in less than seven days, even before the bank’s financial advisors started recommending it to clients.

The investment vehicle, designated as MSBT, represents what’s being called the inaugural bitcoin-backed ETP launched by a U.S.-chartered banking institution. Following its recent debut, the product experienced significant early traction exclusively through self-directed trading accounts on the bank’s wealth management platform.

Amy Oldenburg, who leads Morgan Stanley’s digital asset strategy division, disclosed these metrics during her presentation at the Bitcoin Conference held in Las Vegas.

Oldenburg assumed her present position earlier this year with the mandate to expand the bank’s cryptocurrency offerings in response to increasing client interest.

Bridging the Divide Between Client Demand and Advisor Participation

Morgan Stanley’s official portfolio guidance suggests clients should dedicate 2% to 4% of their investment holdings to bitcoin. However, financial advisors within the organization have been slow to implement this recommendation.

According to Oldenburg, the primary obstacle is educational rather than demand-related. Approximately 80% of ETP holdings on Morgan Stanley’s wealth management platform come through self-directed accounts, indicating clients are independently making these allocation decisions without professional guidance.

To address this knowledge gap, the bank has implemented comprehensive internal education initiatives designed to help financial advisors develop a deeper understanding of digital assets.

Meanwhile, Morgan Stanley is actively pursuing an OCC digital trust charter. Securing this regulatory approval would enable the institution to maintain direct crypto custody capabilities and provide spot cryptocurrency trading services through its wealth management infrastructure.

Currently, MSBT relies on Coinbase and BNY Mellon serving as dual custodial partners.

Balance Sheet Bitcoin Adoption: Still on the Horizon

Oldenburg acknowledged the possibility that U.S. banking institutions might eventually hold bitcoin as direct balance sheet assets. However, she emphasized that such developments remain distant.

She identified the Federal Reserve’s regulatory stance, Basel capital requirement frameworks, and the necessity for coordinated international regulatory consensus as primary obstacles preventing this progression.

BNY Chief Executive Robin Vince expressed comparable perspectives in March, suggesting that major financial institutions would catalyze the subsequent wave of cryptocurrency adoption following improved regulatory definition.

The regulated bitcoin investment product marketplace continues expanding. BlackRock’s IBIT has accumulated over $61 billion in assets since its January 2024 launch, positioning it among the most rapidly growing ETFs in market history.

The impressive initial performance of MSBT demonstrates sustained appetite for regulated bitcoin investment vehicles, while more complex questions surrounding direct balance sheet adoption remain unresolved.

Morgan Stanley’s MSBT employs Coinbase and BNY Mellon for dual custody arrangements and presently operates outside the bank’s formal advisory distribution channels.

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