The Signal Roundtable: The Future of Digital Assets

Amy Oldenburg:

Welcome to Morgan Stanley Institute's Roundtable on Digital Assets. I'm very excited to be here today with individuals from across the organization. It's part of the Integrated Firm Initiative to really bring voices from asset management, wealth management, and also our research efforts on the institutional side. Let me just introduce myself and then also my colleagues, Amy Oldenburg, head of digital asset strategy, Betsy Graseck, global head of banks and diversified finance research at Morgan Stanley. Denny Galindo, investment strategist at Morgan Stanley Wealth Management, and Ally Wallace, global head of ETFs at Morgan Stanley Investment Management. This is the first chapter of digital assets, and it really started with cryptocurrencies. A lot of this has been about Bitcoin, Ethereum, Solana, which we'll talk a little bit about today. But Betsy, maybe I can start with you. Besides cryptocurrency, what's the next chapter of this? How do we think about what's coming next and why has this been so influential in terms of really kicking off with another level of significance just in the last 12 or 18 months?

Betsy Graseck:

There's so much going on, Amy, as you well know. And we on the institutional side have been talking about distributed ledger technology for more than 15 years. But over the last year, there has been a ramping up of investor questions, investor interest, and importantly, company activity in this space. Why? And the reason is that we have a confluence of a variety of vectors that are impacting desire on the part of institutional investors to get more active in tokenization and tokenized products. Number one is cash mobility. Number two is collateral efficiency. And number three is opportunity and optionality in a new asset class. And all of those coming together at a time when we have technologies enabling this activity, accelerating, and we also have the reality that there's money to be made in a new space, which is an opportunity across the board for investors and for asset managers.

Amy Oldenburg:

Well, we continue to see technology transform and also disrupt many different industries. So we have to accept that we can't be immune from that theme that we've looked at across many industries across the board already. And Denny, maybe I'll turn it over to you because you're coming with the voice of wealth management. You talk to many clients across our wealth business. Can you talk a little bit about that institutionalization? Because for many years, we actually didn't really have a way to give our clients access to this new opportunity across digital assets. And now we're spending not only time rolling out new products, but making them a reality for our clients to put in their portfolio. Can you talk a little bit about that?

Denny Galindo:

So back in 2017 when a lot of people really first started looking at this, it was all these kind of really creative ideas with big addressable markets, but not much traction really in terms of actually activity, more dreams about what might happen one day. Slowly we did start to see Bitcoin really have a product market fit as this digital gold type asset. And over the last 10 years, we've seen just slow institutionalization where it used to be unavailable. So I think the liquidity's better, the volumes are better, more people are using it. When we look at our advisors, very few clients actually still invest in crypto. So it's something like emerging market equities or maybe high yield bonds that not everybody uses, but everybody should have the chance to use it if they want to use it. So I think that this first transition is just proving what works, what there's demand for, and that the next chapter really will be about rolling it out to the people that do want access. And still it's a pretty low number today, but it may be growing in the future.

Amy Oldenburg:

That just shows the broad expansion of this topic across our entire business. It's just not one or two financial advisors calling you that manage many of those relationships, but really across the board, which makes your job very busy talking to all the financial advisors and clients across the board. But I think we also see that expansion happening across our entire business. Betsy, you talked about tokenization, but even as we start to roll out some of those tokenized products, there's also the aspect of having that digital cash leg and some of the other digitization of the components to make that whole workflow fit together. And we're really at the firm going through a lot of that work now to ensure that those workflows are working efficiently, that we're understanding what the future may bring and potentially reducing those friction points in the system. I think the second question to that is when we start reducing friction, which again, Betsy, I always love our history conversations we have. We've seen this in the past when we do reduce these friction points, when we reduce the settlement time, there tends to be just a natural acceleration in terms of the volumes that we see in the market and the velocity. I don't know if there's anything else that you can expand on when it comes to some of those history lessons that we've talked about.

Betsy Graseck:

Well, I think number one is the gearing up phase is upon us. And if we look at the past, the J-curve of activity is very sharp when it comes to financial markets. We all know about the J-curve in technology and adoption rates and the acceleration thereof. In financial markets, I would say, look, the one question I get from people is, why are you talking so much about this? The investor sentiment is only just recently coming around to the fact that tokenization of real world assets is happening now. I would say the one misunderstanding is that this is a future subject. No, this is a today subject. And the reason I bring it up in this conversation right now is because we are anticipating that there will be a rapid adoption as some of these real world assets come on chain.

Amy Oldenburg:

That's right. And referencing it's today, Ally, I'm going to turn it over to you because actually it was yesterday was a big day for us on the manufacturing side of products. We launched our Ethereum and Solana ETP. Then can you talk just a little bit about how did we get here? How did we move from more of a speculative asset to more maturation in the system and really thinking about the journey of manufacturing and launching some of our own products at Morgan Stanley?

Ally Wallace:

Yeah, great. I mean, as you said, this has been a journey for us to launch in these last six to nine months. How we really came to this is boils down to investor demand. So we have gone out, talked to our different clients, and really ETPs as a percentage of the overall crypto AUM or market cap right now is still quite low. And so we really see it as the beginning stages of launching these products. ETPs in general in these only launched two and a half years ago. So if you look at innovation and anything that's happened over the past 40, 50 years in finance or any of these trading of the markets, two years in is very early. So I think originally got some questions like, why would you guys come into it now? First, we see a lot of opportunity. We see this growing and we want to offer choice. So that is why we do have the Bitcoin Solana and Ethereum.

Amy Oldenburg:

Well, congratulations on the journey so far. The Bitcoin ETP has been out there since April 9th. I think we're over 400 million, which just is a testament to what the Morgan Stanley brand can deliver. It hasn't been the easiest positioning for Bitcoin this year. It's been a bit of a sideways road, at least in the middle of the year, and still the inflows have been reasonably strong. Denny, I'm going to come back over to you because as we talk about ETPs and putting those on the wealth platform, we were one of the first, but there's been more activity that's happened this year around opportunities that clients can take advantage of, activities like in-kind transactions. So taking advantage of moving spot crypto into ETPs, which is an interesting action to take part in, but it also offers clients an expansion of services within our wealth platform that they can take advantage to us also. I think we're offering some release rates on some of those ETPs so we can provide them lending on the back of that. But I think the other interesting aspect of this is it's one view. It looks like any of their other potential investments that they have in their portfolio, which is a nice client experience. Can you just expand a little bit on that?

Denny Galindo:

Yeah. I think this is just part of the rolling out of all these different capabilities and advisors are sometimes surprised when they have this client that they said, "Go buy it somewhere else back in 2017, 18," and he comes back and he says, "I have $10 million in this. Can I move it to Morgan Stanley?" And so I think these capabilities provide options for people. Even if it's a small set of clients, there's sizable amounts of money sometimes with some of those clients. What we've offered most people, we think about three investor types. There's kind of the digital gold bugs and they've been happy to stop with Bitcoin. There's venture capital style investors that are looking at the great growth opportunities and they'll dabble in other cryptos. And then there's also portfolio diversifiers. Sometimes these are small pension funds or institutions that are looking to diversify their portfolio. So Bitcoin fit everywhere and that's where most of the adoption's been, but a lot of venture capital has been really suppressed by all the AI venture capital opportunities. And so it's kind of depressed now, everyone wants to spend their venture capital money on AI. If that turns, I think there's a lot of opportunities here in crypto that people will be able to invest in. I think we mentioned briefly stable coins and what's happening there with payments is pretty interesting. And then perp markets, prediction markets. And the other one I'm excited about is the cross section of AI and crypto where it can help either raise money for an AI startup, control an agent, which we've seen in the news recently. Some of these agents go rogue and maybe you could use crypto governance to control agents or distributed compute. So there's lots of interesting venture capital style ideas as this kind of universe broadens out from just Bitcoin to everything else you can do. And then slowly we're providing more options to invest in all those opportunities for those clients that want access to that type of thing.

Amy Oldenburg:

Great. I'm going to go back to you, Ally, and talk a little bit about investor demand because with $400 million, you've been down this road with the Bitcoin ETP. I think we've had conversations in the past about a lot of that activity coming from the self-directed business. And I think many times people assume that we're selling it through our FA connections, but that's not always the case, much of that activity. Can you just expand a little bit on that? And then maybe what else do we need to do just on that investor side to get more of that adoption across the board?

Ally Wallace:

Yeah. To your point, I mean, I think we've been pleasantly surprised that most of the AUM that has come into the Bitcoin ETP has been very broad based and really that surge in the beginning was all self-directed clients. So that's your clients that are either coming through E-Trade or all the different online trading platforms. Now that we've gotten to a certain size, that 300, 400 million and the trading activity, everything from a capital markets perspective is really clicking. We are seeing and having more sophisticated conversations with clients broader. So starting to have some of those institutional intermediary has been since the last two months and really starting to dive into how do we grow this to the next level and very interesting to see the different, I'd say, learning points that all these clients are at. To Denny's point, I think you have some that this has been almost like a side hobby and are extremely passionate about it and understand the ecosystem all the way to those that think that they should have investments in it but don't know the value proposition or don't fully understand it. So I think that's really the value part from the ETP perspective is it's brought the conversation up to the forefront to a broader audience.

Amy Oldenburg:

Great. All right. I'm going to put the crypto Bitcoin conversation on the shelf for a minute because I think we should come back around to market infrastructure. What do you think is most misunderstood about the digital asset space? Because a lot of times, even I will have conversations where individuals will start with, well, the price of Bitcoin isn't very attractive right now when we're talking about the broad digital asset landscape. And how do you have those conversations with clients and where do you take that journey?

Betsy Graseck:

So in representing research and thinking about global banks, diversified finance stocks that our analysts cover, the question is how rapidly will the environment shift to enabling 24/7 trading, cash management and long-term investing capabilities? So it's all about what's the road from where we are today to 24/7 always on? We're talking about not just Monday through Friday, but Sunday to Sunday And always on meaning weekends, holidays. And just like I can Zelle people money, I want to be able to have that be a real-time cash transaction. And I want that to be a real-time equity or bond trade. And in order to enable that, you need to have global rails be tokenized so that you can enable this 24/7, always on capability set, number one. And number two, as you well know, interconnected. The conversation is about, is this really going to happen? And this is where I would say the question that investors have is we've been talking about DLTs for 15 years. Why is it now that it's really going to happen? And I think number one, we have a market environment that is supportive of business models that are moving towards enabling this. And number two, we have a series of companies that are enabling it in specific sleeves today. So there's a growing interest in enabling your broader client set to participate as well in 24/7 capabilities.

Amy Oldenburg:

That's right. Denny, maybe continuing on that same theme, what are the myths that you typically hit with investor conversations similar to what Betsy's talking about and trying to navigate them and bring them back to really where the opportunity is in the market?

Denny Galindo:

I think one myth that we've written a lot about is the crypto cycle. I think a lot of people see this cycle and there's been a really consistent cycle of pretty much three up years in crypto. And it's not just Bitcoin, it's all the crypto assets followed by what they call the crypto winter, a really devastating down year that's similar to the Great Depression really. And it happens every four years in crypto, so a lot of depressions. So people say, "That just can't keep continuing," but it has keep continued. And so we think that it's best to give something like that the benefit of the doubt and say, "Well, until you prove me that it's not going to continue, we think it will continue." And so we have a framework for thinking about the cycle of the four seasons of crypto. The drivers of it, people debate it. There could be one element is tied to the money supply. Accelerations and decelerations tend to be about four years. And then the other explanation is this idea of a supply shock that happens every four years with the halving followed by kind of positive momentum, leveraging up something popping the bubble and then de-leveraging. So that's kind of our best guess right now about why it happens. Now, right now in crypto winter, we're starting to look about crypto spring. Generally, the crypto spring starts 18 months before the next halving, which would be September. And generally the winter lasts 12 to 14 months, which would be October to December. So this next four or five months is really the time that we'd expect the beginning of the next bull market to happen. What we look for really to see to confirm that it's happened is the calendar talked about price action. Generally there have been severe winters, Bitcoin down 76% in the mild winter. So that takes you to the 30, 40,000 range. We use some metrics like price to thermocap, which is a little like price to book multiple. And then lastly, news. When you see miners shifting, shutting down mines and going to mine AI, you can measure that. That's a good sign for the beginning of the spring when you see exchanges shut down or have problems. And we just saw Bitmex, one of the big exchanges that invented Perps actually just announced they were shutting down. So these signs are all starting to point to crypto spring. So I think the myth that it won't just happen just like it's happened the last 15 years is one that we feel like you got to prove that it's not going to keep repeating and don't just assume that it's going to keep repeating is one of our big ones.

Amy Oldenburg:

Let's say I'm a client that doesn't. I'm highly skeptical on the decentralized cryptocurrency side, and I'm just trying to understand from you, what products would I potentially see in my wealth portfolio in the future that may take advantage of the digital asset infrastructure that even Betsy's referring to on tokenization that we might not be able to deliver in the historic infrastructure, but potentially are to come down the road? And if anyone else has any views on this, it would be an interesting conversation just to give the vision of what is to come, what should we be seeing that really makes the value-add of this new technology deliver something we haven't been able to do before?

Denny Galindo:

Well, I think Betsy mentioned it, payments and we're looking at ways to make payments easier. Sometimes a stablecoin is a faster way to pay, not so much in the US, but if you're going cross border, a stablecoin can be a lot faster to do a payment for those clients that have those types of payments. Also, the weekend payments obviously work better. There's also assets. In the old days, if you wanted to buy a Japanese stock, you maybe would try to find an ADR. If some of those foreign assets are tokenized, you can more easily buy in the United States. On the other side, there's probably some Japanese or Indian clients that want to buy American stocks and they could buy the tokenized version. So like a cross-border, it's really not the small caps, it's the really large caps that everyone knows about, they just don't have access to. So it's always on broad global markets. The other thing that could be interesting is things that can be used for collateral. These are things that you're pretty certain about the valuation. It's not the really speculative crypto assets, but maybe it's a T-bill or bond or a money market fund that you want to borrow against. Those could be an interesting way to increase your ability to get leverage. And the one that I'm excited about that hasn't happened yet is anything with cash flows that are coming in, once they have a cash flow, you can chop it up really easily and cheaply into different cash flows for riskier clients, for more conservative clients. And so you can do a lot of financial engineering on cash flows. So I think that'll be the area that we're going to see a lot of innovation in the next few years. I'm not sure how fast it'll hit the wealth management clients, but I'm sure we'll be talking about it.

Betsy Graseck:

Well, the programmability that you're referencing there is something that corporates in particular are very interested in. I'm a student of treasury podcasts and listen to them as much as I can. The programmability is really effective at enabling global corporate treasurers to have a bit more control on timing and on delivery of funds for products that has been a desire for the past 15 years of talking through this with DLTs. And so the programmability use cases are getting out there in these treasury podcasts. And as they take hold, I think that could be an accelerant for activity on these rails.

Amy Oldenburg:

Well, I will call my agent to go and tap into some of those cash flows and determine which ones are best for me, I think in the future, because it feels like an overwhelming opportunity set to really capture that and a lot of work, not only for our financial advisors, but for the end clients to understand that. And Betsy, I have to say, just thinking about this 24/7 market environment, I came from the emerging market world. We live this pretty much day to day. I can tell you every American Thanksgiving we spent usually doing business in another country that didn't celebrate American Thanksgiving, and that will basically be our lifestyle day in and day out. I think the one thing that's interesting and I can absolutely see the vision for is we used to live through eras of running a 24/6 book where only half of our positions would be updated because we had batch processing, overnight processing. And I think that's one thing that we'll have to continue to see an evolution of is the data that sits behind that continue to modernize and accelerate so we have that real-time view of our activity and are not waiting for the overnight batch processing to run because that probably won't be something that we can tolerate in this new environment.

Betsy Graseck:

Well, and that's a really great question too for Allie. As we think about the always on NAVs, right?

Amy Oldenburg:

That's right.

Betsy Graseck:

And there's liquid markets and there's degrees of liquidity, let's put it that way. So how do we think through the NAVs in a 24/7 world on markets where maybe there's not a spot price on my Bloomberg every minute of the day?

Ally Wallace:

Right. And I mean, to Amy's background, we have some experience just from the emerging and some of the frontier space for those ETFs over the years. And so having some of the stale pricing, depending on what time of day it is, and having the different liquidity providers and market participants have to basically come up with this intraday nav for all these closed markets. So that is a big body of work that's actually going on now is to understand how do we bring this together so that we can support this 24/7 across. But I do think that we have a good spot that we're working from because it has been something that has been quite evolutionary in ETFs over the years. The INAVs have been since the beginning, a very big part of the valuation process and they're streamed all across different venues. So it's something that's quite familiar, I'd say to this part of the market, the ETF to ETP market, but obviously need to catch up with all the data and inputs that need to go into it.

Amy Oldenburg:

Okay. We've covered a lot and maybe I'll just, because we're getting close on time and I want to make sure that we get to questions because I know that there's questions out there. Maybe Ally, I'm going to start with you and then work back around this way. If we just think about one development that investors should be watching closely within the next 12 months, where do we go?

Ally Wallace:

I mean, I think we were talking a little bit about it earlier, but there really is an interest for this multi-currency, multi-products, almost the next innovation in ETPs of right now, a lot of the assets are held in the passive single currency structures that hold the physical underneath. So really that next derivative of how do we mix these currencies together? How do we create more unique product, whether that be passive or active? So that's really, we're at the forefront of that right now and a lot of conversations, some filings happening. So really how do we bring investors in to gauge their interest and educate them on that?

Denny Galindo:

Yeah, I think if you look at the crypto cycle, the springtime, people are not really ready to get involved in the real volatile cryptos, but they love the crypto infrastructure to trade things. So I think it's been growing really fast this year already, and I think we're going to see a lot of mainstream impact from something tokenized that people can buy that they used to have a hard time getting access to and just continued growth in all the existing categories. Things like HELOCs and money market funds have been leading the way. So I think we're going to see a lot more of those, and I think that that'll be probably the first way crypto hits the people that aren't just in it all the time and thinking about it all the time. It's going to be some kind of tokenized product. And from

Betsy Graseck:

My end, I would say watch the exchanges. Also the trust banks, the custodian banks have been building their product capability sets, and I've been saying that watch the exchanges for their willingness to accept tokenized assets as collateral, which has started to happen. And as that continues to expand, not only across exchanges and across tokenized products, I do expect that that will be a material driver of activity for the institutional investor.

Amy Oldenburg:

Betsy, that's a great point. I think that it's fascinating to see, and even in my conversations around digital assets, where we're talking about some of these businesses that have not really been leading the conversation, if it's trust banks or transfer agents or exchanges, and all of a sudden you're really starting to understand and revisit the pipes and plumbing and architecture and who potentially could be future winners as we start re-architecting some of this. And maybe I'll just add one more that hasn't been mentioned. Very interested to continue to watch the convergence of AI and digital assets. When I have my agent running and the markets close and there's opportunities to go to a 24/7 market, if it's digital assets, if it's perps or some other opportunity to continue to find alpha 24 hours a day, I think it's very interesting to see what that world delivers going forward. And we've talked about it a little bit, but we know a lot of the younger generation that are sitting in their bedrooms or their college rooms building algorithmic trading models, which this is one point that I really talk about fairly often and really just hits me. If we take the institutional business and the high frequency and quant trading activity and electronic trading that we've built over time, and that continues to evolve and really expand into the retail network with much more significance than even some of that semi-pro trading we see today on some of our platforms, that's pretty impactful to not only crypto, but just the overall volumes and velocity of financial services business overall. Okay, so as we're getting ready for questions, we're going to just talk a little bit about expectations for 2026. This has been a whirlwind of a year, so we've made it through first half and really have six months in 2026 to deliver. I think Ally, we'll start again, we'll go around this way a little bit on product. So how are you thinking about product now for 26? Is there anything else coming or is this an opportunity to really kind of build into some of the products we've put into market and how are you thinking about hitting the second half this year?

Ally Wallace:

Yeah, that's a great question because it is actually a very topical conversation we're having right now. So having Solana and Ethereum launch yesterday, the staked versions, that really gives us a good entry point into the market to have these three currencies. We're having conversations about launching additional currencies to see really what that could look like if where we see the value proposition of adding to the market, and then to the point of that next iteration of product. These really are building block products, so to think about how do we have that innovation for that next phase, whether that be multi-currency products, whether that be products that the firm uses in other wrappers from an SMA perspective, partnering with our parametric colleagues and them using them in their different strategies, that's really a really topical part of our conversation right now.

Denny Galindo:

I think that over the next six months, we've expanded all the capabilities on places like E-Trade and in terms of ETPs that are available to advisors, but a lot of people just stopped at Bitcoin and they said, "I've got that covered. I don't want to get it more complicated." It's a lot of work to learn about these other things. So I think as we get into the end of the year, it's the planning season and people start to think, "How much do I want in this bucket? How much do I want in this bucket?" And so you start to see people thinking about what's the right allocation for Bitcoin. We've done some work on it. If you think of it like gold, you come up with one allocation. If you think of it like venture capital, another, and then those that think of it like Diversifier, you come up to a completely different allocation. So in the next six months, for those people that just never got involved, never went beyond Bitcoin, we can help them kind of think Through what position size you want to have, if you even want to have it at all. And so I think that now that there's more opportunities, it's something that people have to take the next step to learn about these other alternatives that are out there and then how it might fit into their portfolios.

Amy Oldenburg:

And Betsy, I was just thinking about putting this a little bit of a different way. I was listening to Denny for you, and we've talked a lot about some of the feedback that you've received from clients. How do you think about clients that are coming as high skeptics to this space? And do you think that's a risk for some of these businesses? How are you thinking about it from the financial services lens? If you are too skeptical and you don't start your build, is there a real risk to some of these businesses as we get beyond 26 and start moving into 27? Especially when we know there's activity like DTCC and some of the other clearing houses that are turning on this year with tokenization. What's the impact on the financial services business there?

Betsy Graseck:

Well, I think that from an institutional provider perspective, which companies that we cover would fall under the category of, you're running your business for growth.

Ally Wallace:

True.

Betsy Graseck:

And this is a market that is new and old at the same time in the sense that real world assets exist today on traditional finance rails. So the question you're raising is if you do not modernize your rails to enable yourself to participate as flows shift to digital asset rails, you're not positioning yourself for growth. And typically that would be a challenge for management teams to be able to maintain their strategies if they're not leaning into growth opportunities where they are. So to your point on skeptics, why would you not start a build-out? True. You would not start a build-out if you truly believe that there is no demand for this capability set to have real world assets move on to a 24/7 tokenized platform. And my thought is that as flows migrate, well, and why I say do is because there's functionality there. There's functionality in 24/7. And we know there are investors who are very interested in being able to manage their funds 24/7 basis. The entirety of your investor base is not your domestic market wherever you are.

Amy Oldenburg:

That's right. And that gets very tricky too because you're working across multiple jurisdictions. I think the other thing too is just this isn't just a digital asset topic, this starts to get into your point, entire infrastructure. It touches cloud, it touches data, it touches settlement layers across the board and across any of the different Policy structures, if it's in Japan or Hong Kong or the Middle East or Europe, UK and the US. So I think that's a really big takeaway for me. And especially being in the global markets and the emerging market world, I was trying to reflect on this earlier this year of why does it feel so intense? I've done this before in many ways. And I think the thing that I came around to is, well, we expanded into a new market. If it was expanding into a new segment in India or expanding the business in the Middle East or China, we were doing it one country at a time. And here it really is a global theme that's happening across the board. And there's not many themes that we get that sort of significant rollout with. It's also become a bit of a geopolitical topic actually in some ways too, because it goes into that discussion around being leaders on innovation, if it's innovation on AI or digital assets, which becomes very interesting also.

Betsy Graseck:

But I do think the functionality of 24/7 any day, regardless of holidays and weekends is something that we will see investors and corporates leverage. And as that benefit of utilizing that capability becomes more known, that will spur increased activity.

Amy Oldenburg:

And interest to start turning things on when they see other people potentially gaining value or some benefit from having that capability when you don't have those cutoffs and you potentially can take advantage of new products after a 4:00 PM or 6:00 PM cutoff. I mean, that's very valuable to an organization to help manage their

Betsy Graseck:

Valuable and exciting. And exciting. And I do phrase it as, look, this is the end of banker hours in the sense that your batch processing mentality is going to be a thing of the past. And look, you need to be readying your platforms to be able to operate in this new mode. And to the degree it takes off faster than you're expecting, your market share is at risk. So I do think it's something that, look, it makes sense to be involved in and to be building for today. And we all know it will be a multi-year journey. I think we phrased it as this is going to be taking place across real world assets over the next decade. This is not going to all be done in 26, ha ha ha or even 28. This is going to take a decade plus to be affected throughout real world assets. And we're starting with cash, with stablecoin, but tokenized deposits is also an area. We have tokenized MMFs already. So cash is at this moment, globally, probably the furthest along, but there's still a lot more to do there. And name all your other asset classes.

Amy Oldenburg:

And they'll be there too. I think the thing that we also start finding when the reality hits when you have potentially a wallet or holdings where some are digital and some are traditional, Even if it's cash or cash equivalent, it starts making the traditional look less liquid than the digital. And that is a bit of a scary, or I would say exciting -Disruptive. But disruptive, disruptive is the right word, thought because it really starts, how do you think about risk, haircuts? I think we'll get to more efficiency, but the hybrid world may be a little bit more of a challenge going forward. And we do have a question on in-kind. So I'll talk a little bit with Allie and Denny on in-kind because that kind of falls very squarely in this world of hybrid. You're talking about taking spot crypto available 24/7 and the interest in bringing that into an ETP. I mean, how do we think about this? Because I think the one takeaway that I have, at least from spending years around the digital asset landscape, is there was a bit of a fail there on the client experience or user experience because well, there is some interest in being able to self-custody your assets and many people feel very strongly about that. There's also limitations in terms of the services around the assets, the usability of those. Now, some of those are growing today, but it's been tough. And then there's also a lot of risks. So why are you seeing that in-kind so attractive? Because to me, coming as a long-term EM and digital asset person, I don't think I would move my Bitcoin into an ETP, but I can see some of the value in it by some of the other services that we've rolled out. So I don't know if you want to start.

Denny Galindo:

I've talked to a lot of people that they didn't really want. When they bought it, it wasn't that much money a lot of times. And now it's grown to a lot amount of money and you don't necessarily want everything on your person, in your own wallet. It's risky. And there's been situations where criminals have attacked people that have huge amounts of crypto at home. So I think that maybe they always want to have some of it on their person, but if you can give it to an institution you trust, it's a pretty powerful feature. So you can do that two ways. In-kind is one way. You give it to create an ETP and then you get that ETP dropped into your account and then eventually you'll be able to transfer crypto directly into someone like Morgan Stanley, which would be another good option for it. There are people that like to trade, but a lot of people are not trading it. They're thinking about venture capital or you buy it one year, hold it for five or 10 years. So for those people, I don't think the trading hours bother you much. And of course, even ETPs are going to go to 24/7 before too long. I don't know, five or 10 years when you're thinking in that scale. The liquidity isn't a huge sacrifice, and there are a proliferation of ways to hedge it. Even if you did want to, they would still have the twenty four seven through perps and different things like that. I think it's attractive for a lot of people to do that so they can have all their assets in one place.

Ally Wallace:

Yeah. What we've seen is, as Denny said, there are investors that got in it very early and fortunately these have ballooned in value, so are looking to basically offset a portion of what they hold. In that, they get a few things. First is the trading, the liquidity, the on-exchange liquidity, also the ability to use it in a more traditional structure. So pledge it for collateral, that has been a big use case that I think some have found very attractive is they can actually use this to be able to invest more. And then as well as just a broad base use case of holding for wealth planning. So you can hold that in a more traditional structure and actually be able to structure it in a will. There is a lot, I'd say that is kind of holding it in a digital native way is starting to come into that more. But as of right now, everything really revolves around holding it in a more traditional structure. So that is a big value proposition as well.

Amy Oldenburg:

Super interesting to kind of see this continued maturation happen across the board and also this hybrid world coming back together. Betsy, I do have to tap into our history lessons that we talk about a little bit because we have a question coming in on is this another example of where speculation kind of turns into, is this a junk bond high yield type of experience where we start and we call it one thing that people are more skeptical, it doesn't really have a real position in the portfolio, no place in an asset allocation to then really coming and taking a true position within allocations or is it a little bit of both? Because I think one thing maybe we should make sure we settle here on the table is there's product to access the investment around the infrastructure. And then there's the infrastructure itself that drives product, which makes that conversation a little bit difficult. Are we moving out of the speculation and we moving into the reality of the future? You've touched on that a little bit, but would you qualify it as really moving out of speculation?

Betsy Graseck:

So I am here representing the infrastructure side of this discussion, not the crypto asset class valuation side of this discussion. So I'll look to my right and Denny for the latter. But as it relates to the infrastructure side of the question, one of the other drivers that we haven't talked about in detail is the reality that Gen Z is more than digital native. I don't know, digital enabled maybe. I don't know. But the Gen Zers are constantly questioning why do we have this batch concept? I mean, I don't know the word batch, but why do I have to wait for my money to transfer? So the expectations of the investor set is rising and look, institutional investors would be very happy to leverage capabilities of increased collateral mobility and increased collateral value as well as increased flexibility for trading. So I would rephrase the question as this is a flash in the pan, technology shift that's never going to happen or something like that, but it's already starting to happen. And that's where just to put a pin on what you mentioned earlier, Amy, on the DTCC, which is a key infrastructure player for global markets, in particular in the US, has already put on chain US treasuries, has already put on chain some liquid equity products, and we are already seeing investor activity taking advantage of that. So it's already happening.

Denny Galindo:

Yeah. I think one interesting thing is that for a long time, digital assets were kept out of the traditional financial system. And so this whole ecosystem, this infrastructure, trading infrastructure, borrowing, lending had to be created to serve people that wanted this kind of small, unique asset class. But it got big enough now that now that traditional institutions want to gain exposure to this asset class, you have to incorporate these traditional rails to tap into this new asset class. And then once you've already spent the money to provide capability with Ethereum or Solana or Bitcoin, you're like, "What else can I use this for?" And so the interesting thing is now it solves this problem of why would you finance this infrastructure when you already have infrastructure that's working fine already? Now you built it to tap into this new asset class, but you're like, "Hey, now I can use it for all these other things." And so I think that at this point, I mean, I feel a little sorry for the digital native companies that kind of built it all out. Now that the big traditional finance players are getting involved, they're going to take over this infrastructure and use this infrastructure for themselves. And it seems like we're leading the way in that effort. So I think we'll use it for all kinds of things beyond digital assets, but someone had to create the incentive to build all this infrastructure that's pretty useful, which the digital asset class pioneers really built it. And now luckily we can use it.

Amy Oldenburg:

Yeah. Well, I always think about, I grew up in technology in the late '90s and early 2000s, and that was during the music file sharing era. And I think about that where some of the companies that were developing the first technology to share music digitally, I mean, it was just a battle upon battle similar to what we've seen in this area and has continued to evolve in terms of players that have been able to navigate this. And there were so many debates back then. This is totally disruptive to the music industry. No one's ever going to want this to happen. And here we are, all of us really stream all of our music today. Although my son went back and bought an MP3 player this summer because there's some obsession with going back in time and using old tech and downloading MP3s. I said, "Could you even download MP3s anymore? I didn't even know those were available online." And I think we're going to go see a similar era of that where we go through questions around the disruption and then it continues to integrate over time. But I think you bring up a good point of it might not be those initial players that really brought the technology to market, but another realm or hybrid world of players that navigate the future.

Denny Galindo:

Yeah. I always remember when you first got the internet, you had to sign up for some company. Sometimes you got the disc in the mail from AOL or sometimes you signed up to a local company that would give you a dial-up number, but then eventually all the big telco companies were like, "Oh, you want faster access? We'll give you a DSL line. We'll give you a cable modem." So I think we're in that stage where you kind of shift from the dial up line to the cable modems. And so it's good to be a cable modem provider in that situation.

Amy Oldenburg:

Netflix used to send us DVDs in the mail and we put them in the red box or whatever that was next to the grocery store and evolved into the next generation of just streaming. So you have to make it through some of these iterations on the realm to the next level. But Betsy, to your point last night, my daughter text me for money to go to dinner and I sent her her money through a text message. She wants it through text and not through any sort of banking infrastructure. So I think we'll continue to see some of this embedded finance continue to evolve, especially with the next generation that just lives their life like that and thinks about this a little bit differently as digital natives. But maybe that's a good place to stop. Thank you so much for your time. So many great discussions. I think really hitting on the integrated firm initiative. So grateful to be at Morgan Stanley and be able to tap into all of our different divisions that are navigating the future of digital assets. So thank you very much. Appreciate it.