Insight Article Desktop Banner
Global Equity Observer
December 30, 2021

To the Moon? Quality Investing and Blockchain

Insight Video Mobile Banner
December 30, 2021

To the Moon? Quality Investing and Blockchain

Global Equity Observer

To the Moon? Quality Investing and Blockchain

Share Icon

December 30, 2021


2021 has turned out to be another year of the cryptocurrency. Bitcoin (~+97%), Ethereum (~+527%), and the now infamous Dogecoin (~+4,486%) have all dramatically outperformed the S&P 500 (+22%).1


In August 2008, in the midst of the Global Financial Crisis, a nine-page paper titled Bitcoin: A Peer-to-Peer Electronic Cash System was published under a pseudonym on a cryptography mailing list. Two years later, Laszlo Hanyecz offered 10,000 bitcoins in exchange for two pizzas, the first recognised commercial transaction on this new payment concept. Thirteen years on, Bitcoin still exists, functioning as a network to move value on the internet without the use of a central authority—even if Bitcoin itself has become more of a speculative asset than a stable substitute for money. Today, those 10,000 bitcoins are worth ~US$470 million and cryptocurrency system tokens have a total market capitalisation of around US$3 trillion.2

Today, cryptocurrency system tokens have a total market capitalisation of around US$3 trillion

Last month the first a bitcoin-linked exchange traded fund (ETF) was finally launched, becoming the fastest ever ETF to reach US$1 billion of assets.3 An ETF which directly owns Bitcoin (rather than Bitcoin futures) still awaits approval from the U.S. regulator, the Securities and Exchange Commission (SEC).

Blockchain – the underlying technology

Bitcoin is underpinned by blockchain. For many, blockchain is a difficult field to get comfortable with because it sits somewhere between economics, cryptography/database construction, theoretical statistics, and sometimes even philosophy— academic disciplines of which few people have a combined understanding. It is also surrounded by a huge amount of noise from fringe libertarian followers, and the system is rife with hype from fraudsters. Whilst blockchain was initially a consumer-led innovation, dismissed by professional investors and regulators, a recently renamed social media company’s 2019 digital currency project was a turning point; the potential of a well-funded company with over a billion users to create a more or less instantly scaled, systemically important private currency was a wake-up call.

Without getting into how blockchains work, the key concept is that they are a new type of database architecture with the potential to disintermediate many existing business models, particularly, but not exclusively, in financial services. This new database structure facilitates the transfer of value between parties over the internet without a central authority. It also allows for the creation of automatically-executing ‘smart’ contracts and programmable money—which we explain later. Its presence and properties could theoretically lower the costs of verification and network construction in the economy.

In more tangible terms, today when you use digital money on a debit or credit card to buy something, banks and payment networks extract fees for verifying you are good for the money you are giving to the merchant in exchange for a particular product or service. Verification costs are even higher when multiple parties need to verify/audit the transfer of assets through a chain of correspondent bank ledgers across borders. This is the reason cross-border remittances are slow and costly. Blockchain technology could enable such transfers more quickly and cheaply, in ways that are more easily auditable by all parties involved. Blockchain database structures allow for one central “source of truth”, a ledger, to be distributed across many parties that can store a copy of it, access it and add to it.

Blockchain also has the theoretical ability to lower the barriers to entry to building a new network. If you wanted to build a new centralised payment network today, it would entail very high startup technology and security costs. Blockchain networks can be built up over time far more cheaply, using incentives for users, investors and developers, with both the security and the value of the network itself scaling as the network grows. We believe that this innovation in verification and in networking economics has implications for the long-term outlook of moats around the returns of some quality companies and how they do business today.

Opportunities posed by blockchain

We believe that the properties of blockchain can pressure existing industries to become higher quality and can also allow the creation of new quality businesses, which centralised system economics have so far failed to achieve. Pressure from blockchain on incumbents could alter current competitive industry dynamics and encourage co-operation among natural competitors—or ‘co-opetition’. A good example is supply chain finance, a US$16 trillion industry4 with an all-too-common reliance on archaic paper forms and stamps.5 Blockchain competition is encouraging banks, commodity firms and shippers to group together, standardise and digitise their processes in ways that previously proved elusive. Thus paper methods move to digital, saving significant operational costs, increasing efficiencies and speed and also releasing collateral capital from the system. The most bullish estimates suggest this could free up over US$1 trillion of cost from the system.6

Whilst blockchain networks are ideally suited to large multi-party networks with significant agreements to move ownership rights, the eventual solution may not be a new, decentralised blockchain company. It may actually be preferable simply to upgrade incumbent systems on existing centralised databases using apps, or to use a more centralised permissioned blockchain—which isn’t that different to the systems that exist today. Either way, the presence of blockchain is forcing progress. Without the existential threat it poses, many industry incumbents lack the impetus to change (inevitably in many instances the threat may not be enough). There are opportunities not just around systems that already exist; there are many new ideas and functions which could become very high return businesses of the future—for instance a blockchain network allowing customers to buy art or real estate, thus replacing complex auction and legal fees.

Continuing the supply chain theme, blockchain experimentation is leading to innovation in tracking the provenance of goods. This could significantly reduce waste. While not a decentralised blockchain system like bitcoin, an American multinational retail corporation is experimenting with blockchain company Hyperledger Fabric to bring greater transparency to food supply chains. This could enable highly selective recalls of specific batches of contaminated foods, such as E. coli infected food, eliminating the huge wastage that occurs in indiscriminate recalls when contamination is detected today.    

Cryptocurrencies and the central banks

Pressure to change even extends to central banks. Today, consumers have two main forms of money: cash directly issued by central banks in a physical bearer form, and account-based money inside the banking system. We believe that Bitcoin has proven the concept of a new form of peer-to-peer value, a private form of currency in the form of a digital bearer asset, with a pre-programmed monetary policy. Whilst private currencies are not a new invention, digital private currencies have the potential to scale up and provide a decentralised check.

Furthermore digital programmable bearer assets represent many new opportunities. They can increase the safety of the payment system. Historically, cash was a reasonable alternative to account-based digital money. However, as the use of cash declines, and the systemic dependence on the private companies operating payment systems risks single points of failure, what happens if any major card network gets hacked, or simply breaks? If a central bank could issue tokenised digital cash, they could create a viable alternative digital payment system. Central bank issued tokens could also have additional features which are not present in the system today. For instance, they could automatically be linked to central bank interest rates, positive or negative. This is particularly interesting for negative rates, whose real efficacy today is more constrained by the presence of physical cash. Singapore, Canada, China and Sweden have all been testing some advanced digital currency programs.7 One of our portfolio companies runs the E-krona project for the Bank of Sweden.

Token offerings

Outside creating new digital bearer forms of cash, tokens can be structured in many ways, both fungible and non-fungible. Some are designed as revenue utility tokens—think of them like a token which represents a single use of an arcade game or laundromat machine. Some are structured more like equity, giving theoretical rights over fee pools and profits. Other tokens are digital representations of assets, from stable coins which are fungible and represent fiat currency, to NFTs (non-fungible tokens) which represent ownership over digital art for instance, but could also represent physical art, or even your home. The customisable nature of tokens opens up all sorts of other parts of finance and asset transfer.  

Tokens are also another way to bring liquidity to fund businesses. You may have heard about ICOs (Initial Coin Offerings). As a structure, they have the potential to turn private venture capital funding or expensive initial public offering processes from being local and closed, to global and open to everyone. Asset tokenisation can extend far beyond financial services; theoretically the Mona Lisa could be turned into a token and ownership of the painting could become far more accessible and liquid. Owners of a Mona Lisa token could attain rights over ticket revenue to view the Mona Lisa. In the coming decades, it isn’t beyond the realms of possibility that something akin to a Mona Lisa token could form part of a future global equity strategy designed around strong franchises.

Already investing

In the meantime, why is all of this of interest? Many of our team’s existing holdings are already investing in blockchain and are creating new services to profit from blockchain. For example, a multinational professional services company has already been mentioned as a key partner with the Swedish central bank, the Riksbank. One of the world’s largest software companies runs one of the largest blockchain-as-a-service (BAAS) products on its Azure platform, enabling its clients to deploy blockchain networks, build apps with confidence and store data off-chain. A multinational IT services company similarly has a BAAS offering integrated with its cloud product Leonardo. An American technology conglomerate is creating a search engine for blockchain and has partnered with Chainlink, a blockchain platform which provides data signals, or oracles, from the real world for smart contracts. A global payments company is instrumental in enabling fiat currency to crypto payments, and it is pursuing a large amount of experimentation and investment in blockchain, including investment in Anchorage Digital, one of the leading custody providers in crypto. A Singaporean financial services corporation is part of the eTrade Connect consortium to modernise trade finance using Hyperledger. At this stage these exposures are not material—but could be very material on a 10-year view.

Problem-solving potential

We are still very early in the advent of the ‘Internet of Value’. Most concepts to date do not work properly at scale outside of highly controlled experimental environments. Blockchain is going to have to prove that it can solve real problems in an economically viable way. The list of problems to overcome is long. It includes scalability, speed, privacy, security, environmental impact/energy intensity, governance, and more. Know Your Client, anti-money laundering, general data protection regulation (GDPR) and investor protection issues are all being considered by regulators, but approaches vary between getting blockchain organisations to fit into existing financial services registrations and creating new frameworks. One common area of global focus has been on the stock exchanges as they interface with the existing financial system. Ultimately, the cryptokitty is now out of the bag and there probably isn’t any going back.

Shoot for the moon?

It is very hard to say what the future looks like, but if we were to hazard a guess, where centralised, scalable systems work well in the main—like a global payments company’s platform which processes approximately 2,000 transactions a second—blockchain is more likely to encourage innovation by incumbents and disintermediate the pricing in some of the functional layers these businesses undertake today. In these instances, there often isn’t a massive problem to fix, but rather a series of things to improve. However, where incumbents have so far resisted change and sleepy, paper-based value transfer is the norm, new blockchain companies may well completely replace existing ways of verifying asset transfer. In the meantime, one of the biggest obstacles immediately ahead is regulation, but once there is a framework for how blockchain fits into public policy, institutional adoption will likely be further enabled, and progress should re-accelerate.

Many prominent investors and economists are contemptuous of cryptocurrency. Dogecoin may turn out to be tulip mania, or maybe, as the official Dogecoin song8 goes: ‘To the Moon!’, the HODL (Hold On for Dear Life) Doge Army is rightly throwing down the gauntlet to all of us to be more imaginative about what the future could look like.


Risk Considerations

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market value of securities owned by the portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Changes in the worldwide economy, consumer spending, competition, demographics and consumer preferences, government regulation and economic conditions may adversely affect global franchise companies and may negatively impact the strategy to a greater extent than if the strategy’s assets were invested in a wider variety of companies. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Stocks of small- and mid-capitalisation companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. ESG strategies that incorporate impact investing and/or Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance. Cryptocurrency (notably, Bitcoin) operates as a decentralised, peer-to-peer financial exchange and value storage that is used like money. It is not backed by any government. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. Cryptocurrency may experience very high volatility.

Managing Director
International Equity Team
Featured Funds


The indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto. The S&P 500® Index measures performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. market, including 500 leading companies in the U.S. economy.


This communication is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

Ireland: MSIM Fund Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. Registered in Ireland as a private company limited by shares under company number 616661. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA, authorised and regulated by the Financial Conduct Authority. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai  International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany: MSIM Fund Management (Ireland) Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: MSIM Fund Management (Ireland)Limited, Milan Branch (Sede Secondaria di Milano) is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 11488280964. The Netherlands: MSIM Fund Management (Ireland) Limited, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. France: MSIM Fund Management (Ireland) Limited, Paris Branch is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited Paris Branch with seat at 61 rue de Monceau 75008 Paris, France, is registered in France with company number 890 071 863 RCS. Spain: MSIM Fund Management (Ireland) Limited, Sucursal en España is a branch of MSIM Fund Management (Ireland) Limited, a company registered in Ireland, regulated by the Central Bank of Ireland and whose registered office is at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland. MSIM Fund Management (Ireland) Limited, Sucursal en España with seat in Calle Serrano 55, 28006, Madrid, Spain, is registered in Spain with tax identification number W0058820B.  Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (“FINMA”). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0) 44 588 1074.


A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus please download one at or call 1-800-548-7786. Please read the prospectus carefully before investing.

Morgan Stanley Distribution, Inc. serves as the distributor for Morgan Stanley funds.


Hong Kong: This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this document have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This document should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.

Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”). This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.


EMEA: This marketing communication has been issued by MSIM Fund Management (Ireland) Limited. MSIM Fund Management (Ireland) Limited is regulated by the Central Bank of Ireland. MSIM Fund Management (Ireland) Limited is incorporated in Ireland as a private company limited by shares with company registration number 616661 and has its registered address at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42,  Ireland.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s/product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing.

This material is a general communication, which is not impartial and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Except as otherwise indicated herein, the views and opinions expressed herein are those of the portfolio management team, are based on matters as they exist as of the date of preparation and not as of any future date, and will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date hereof.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific Morgan Stanley Investment Management product.

MSIM has not authorised financial intermediaries to use and to distribute this document, unless such use and distribution is made in accordance with applicable law and regulation.

Additionally, financial intermediaries are required to satisfy themselves that the information in this document is appropriate for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

The whole or any part of this work may not be directly or indirectly reproduced, copied, modified, used to create a derivative work, performed, displayed,  published, posted, licensed, framed, distributed or transmitted or any of its contents disclosed to third parties without MSIM’s express written consent. This work may not be linked to unless such hyperlink is for personal and non-commercial use. All information contained herein is proprietary and is protected under copyright and other applicable law.

All information contained herein is proprietary and is protected under copyright law.


This is a Marketing Communication.

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.