Footnotes:
1 Generally, a store-of-value asset should be liquid, should not deteriorate with time and should hold its value over time. Many bitcoin holders believe it has these characteristics, while others disagree.
2 Although this analysis is comparing bitcoin to commodities for the purpose of estimating returns, bitcoin has its own features and risks that are different than commodities. Specifically, bitcoin is a digital commodity subject to software and encryption risk which most other commodities do not have. Also, unlike most commodities it is not used up, it’s always available unless lost.
Investment Analysis Tool Disclosures
This material indicates the results generated by an Investment Analysis Tool (the “Long-Term Return Tool”) to project the performance of cryptocurrencies under different scenarios (referred to throughout as “Scenarios”), including how the annualized implied returns of such cryptocurrencies may be affected by changes in penetration, cryptocurrency supply and global store-of-value market growth.
Results may vary with each use and over time.
IMPORTANT: The projections or other information generated by the Long-Term Return Tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.
The universe of investments considered in the Long-Term Return Tool’s analysis is limited to cryptocurrencies such as Bitcoin and Ethereum, and such selectivity is due to Bitcoin’s and Ethereum’s respective share of the market capitalization of cryptocurrency assets. Please note: Bitcoin and Ethereum may not reflect broader cryptocurrency asset risk/return profiles and smaller or newer tokens may behave very differently. Other investments not considered may have characteristics similar or superior to those being analyzed.
Please review important disclosures below for a description of criteria and methodology used. In addition, please see below for a description of the Long-Term Return Tool's limitations and key assumptions, such as sensitivity to inputs, reliance on long-term adoption assumptions, volatility of cryptocurrency assets, and uncertainty of future regulatory and market conditions.
RESULTS OF THE SCENARIOS ARE NOT GUARANTEES OF WHAT WILL HAPPEN BASED ON THESE ASSUMPTIONS.
Criteria. The Long-Term Return Tool estimates hypothetical 10-year annualized implied returns for cryptocurrencies based on adjustable inputs reflecting (i) projected cryptocurrency supply growth, derived from each cryptocurrency's programmed or expected issuance schedule and, where applicable, burn or staking mechanisms; (ii) projected growth in demand for store-of-value assets, measured by growth in the total addressable store-of-value market (defined to include major global currencies such as U.S., Eurozone, U.K., Swiss, Chinese, and Japanese M2 money supply, gold, and cryptocurrencies); and (iii) projected changes in a cryptocurrency's penetration of that market.
Methodology. The Long-Term Return Tool applies a supply-and-demand framework in which demand-side inputs (store-of-value market growth, changes in penetration or market share, and, where applicable, supply impacts from staking participation) are compounded over a 10-year horizon, divided by 10-year compounded cryptocurrency supply growth, and annualized to produce the implied return. Illustrative Scenarios reflect different input combinations (such as no change, growth in line with population or historical adoption curves, declines, sudden drops, and conservative, aggressive, or bearish demand-and-supply assumptions) and are not forecasts of likely outcomes. Actual results may differ materially from all illustrated Scenarios. Underlying historical data are derived from third-party sources, including Bloomberg, the Federal Reserve M2 series (FRED), and other publicly available cryptocurrency and market data providers. Such sources are believed to be reliable but are not independently verified, and data quality, consistency, and availability may vary, particularly with respect to cryptocurrency markets.
Key Assumptions. The Long-Term Return Tool's outputs depend on material assumptions, any of which may prove incorrect, including that each cryptocurrency's expected issuance schedule (including scheduled supply events such as halvings, block reward changes, or burn mechanisms) will occur as anticipated and that block production rates remain consistent with current expectations; that the selected store-of-value universe reasonably represents the total addressable market; that current protocol rules, network economics, and staking incentives remain broadly consistent over the projection period; that long-term store-of-value demand can be reasonably approximated by historical money supply growth; that penetration, market share, and staking participation are appropriate proxies for adoption; and that implied returns are nominal and not adjusted for inflation. All outputs depend wholly on the selected inputs, and different inputs will produce materially different results.
Limitations. The Long-Term Return Tool is model-based and does not reflect actual trading, transaction costs, taxes, custody or exchange fees, slippage, liquidity constraints, or investor behavior, and actual results will differ, potentially materially. The defined store-of-value market may not capture all sources of demand, and other instruments used as stores of value (including smaller currencies, alternative digital assets, commodities, and real estate) are not modeled. Changes to a cryptocurrency's supply curve, issuance, burn mechanisms, staking incentives, software upgrades, forks, or events resulting in lost or burned tokens could materially alter actual results relative to the model. The Long-Term Return Tool does not incorporate future regulatory, tax, sanctions, or policy developments, which could materially affect adoption, demand, market access, and valuation. Adoption proxies may not fully capture network usage, decentralized finance activity, competing Layer-1 and Layer-2 ecosystems, or other factors. Historical inputs are derived from third-party sources believed reliable but are not independently verified and may be revised. Implied returns are highly sensitive to assumptions, and small changes in inputs can produce materially different results. The Long-Term Return Tool's analysis is limited to selected cryptocurrencies and does not consider other cryptocurrencies, digital assets, or asset classes that may have similar or superior characteristics.
Cryptocurrencies are highly volatile, speculative, and subject to rapid changes in valuation, involve a high degree of risk including the potential loss of the entire amount invested, and may not be suitable for all investors. Historical data on cryptocurrencies may be limited or not indicative of future performance, and regulatory, technological or market developments related to cryptocurrencies may materially impact outcomes.
Past performance is not indicative of future results. The projections and Scenarios generated by the Long-Term Return Tool are hypothetical, do not reflect actual investment results, are not guarantees of future performance, are intended for informational and educational purposes, and are not intended to constitute investment advice or a recommendation.
Disclosures:
Morgan Stanley’s Global Investment Office makes no recommendation regarding whether to buy or sell bitcoin but encourages investors to get educated. Ultimately, investing in bitcoin or any other cryptocurrency should be based on thorough research and understanding of the asset class. Investing in cryptocurrency is highly speculative and may result in a loss of the entire investment.
Risk Considerations
Buying, selling, and transacting in Bitcoin, Ethereum or other digital assets (“Digital Assets”), and related funds and products, is highly speculative and may result in a loss of the entire investment. Risks and considerations include but are not limited to:
Digital Assets have only been in existence for a short period of time and historical trading prices for Digital Assets have been highly volatile. The price of Digital Assets could decline rapidly, and investors could lose their entire investment. Certain Digital Asset funds and products, allow investors to invest on a more frequent basis than investors may withdraw from the fund or product, and interests in such funds or products are generally not freely transferrable. This means that, particularly given the volatility of Digital Assets, an investor will have to bear any losses with respect to its investment for an extended period of time and will not be able to react to changes in the price of the Digital Asset once invested (for example, by seeking to withdraw) as quickly as when making the decision to invest. Such Digital Asset funds and products, are intended only for persons who are able to bear the economic risk of investment and who do not need liquidity with respect to their investments. Given the volatility in the price of Digital Assets, the net asset value of a fund or product that invests in such assets at the time an investor’s subscription for interests in the fund or product is accepted may be significantly below or above the net asset value of the product or fund at the time the investor submitted subscription materials. Certain Digital Assets are not intended to function as currencies but are intended to have other use cases. These other Digital Assets may be subject to some or all of the risks and considerations set forth herein, as well as additional risks applicable to such Digital Assets. Buyers, sellers and users of such Digital Assets should thoroughly familiarize themselves with such risks and considerations before transacting in such Digital Assets. The value of Digital Assets may be negatively impacted by future legal and regulatory developments, including but not limited to increased regulation of such Digital Assets. Any such developments may make such Digital Assets less valuable, impose additional burdens and expenses on a fund or product investing in such assets or impact the ability of such a fund or product to continue to operate, which may materially decrease the value of an investment therein. Due to the new and evolving nature of digital currencies and the absence of comprehensive guidance, many significant aspects of the tax treatment of Digital Assets are uncertain. Prospective investors should consult their own tax advisors concerning the tax consequences to them of the purchase, ownership and disposition of Digital Assets, directly or indirectly through a fund or product, under U.S. federal income tax law, as well as the tax law of any relevant state, local or other jurisdiction. Over the past several years, certain Digital Asset exchanges have experienced failures or interruptions in service due to fraud, security breaches, operational problems or business failure. Such events in the future could impact any fund’s or product’s ability to transact in Digital Assets if the fund or product relies on an impacted exchange and may also materially decrease the price of Digital Assets, thereby impacting the value of your investment, regardless of whether the fund or product relies on such an impacted exchange. Although any Digital Asset product and its service providers have in place significant safeguards against loss, theft, destruction and inaccessibility, there is nonetheless a risk that some or all of a product’s Digital Asset could be permanently lost, stolen, destroyed or inaccessible by virtue of, among other things, the loss or theft of the “private keys” necessary to access a product’s Digital Asset. Investors in funds or products investing or transacting in Digital Assets may not benefit to the same extent (or at all) from “airdrops” with respect to, or “forks” in, a Digital Asset’s blockchain, compared to investors who hold Digital Assets directly instead of through a fund or product. Additionally, a “fork” in the Digital Asset blockchain could materially decrease the price of such Digital Asset. Digital Assets are not legal tender, and are not backed by any government, corporation or other identified body, other than with respect to certain digital currencies that certain governments are or may be developing now or in the future. No law requires companies or individuals to accept digital currency as a form of payment (except, potentially, with respect to digital currencies developed by certain governments where such acceptance may be mandated). Instead, other than as described in the preceding sentences, Digital Asset products’ use is limited to businesses and individuals that are willing to accept them. If no one were to accept digital currencies, virtual currency products would very likely become worthless. Platforms that buy and sell Digital Assets can be hacked, and some have failed. In addition, like the platforms themselves, digital wallets can be hacked, and are subject to theft and fraud. As a result, like other investors have, you can lose some or all of your holdings of Digital Assets. Unlike US banks and credit unions that provide certain guarantees of safety to depositors, there are no such safeguards provided to Digital Assets held in digital wallets by their providers or by regulators. Due to the anonymity Digital Assets offer, they have known use in illegal activity, including drug dealing, money laundering, human trafficking, sanction evasion and other forms of illegal commerce. Abuses could impact legitimate consumers and speculators; for instance, law enforcement agencies could shut down or restrict the use of platforms and exchanges, limiting or shutting off entirely the ability to use or trade Digital Asset products. Digital Assets may not have an established track record of credibility and trust. Further, any performance data relating to Digital Asset products may not be verifiable as pricing models are not uniform. Investors should be aware of the potentially increased risks of transacting in Digital Assets relating to the risks and considerations, including fraud, theft, and lack of legitimacy, and other aspects and qualities of Digital Assets, before transacting in such assets. The exchange rate of virtual currency products versus the USD historically has been very volatile and the exchange rate could drastically decline. For example, the exchange rate of certain Digital Assets versus the USD has in the past dropped more than 50% in a single day. Other Digital Assets may be affected by such volatility as well. Digital Asset exchanges have limited operating and performance histories and are not regulated with the same controls or customer protections available to more traditional exchanges transacting equity, debt, and other assets and securities. There is no assurance that a person/exchange who currently accepts a Digital Asset as payment will continue to do so in the future. The regulatory framework of Digital Assets is evolving, and in some cases is uncertain, and Digital Assets themselves may not be governed and protected by applicable securities regulators and securities laws, including, but not limited to, Securities Investor Protection Corporation coverage, or other regulatory regimes. Morgan Stanley Smith Barney LLC or its affiliates (collectively, “Morgan Stanley”) may currently, or in the future, offer or invest in Digital Asset products, services or platforms. The proprietary interests of Morgan Stanley may conflict with your interests. The foregoing list of considerations and risks are not and do not purport to be a complete enumeration or explanation of the risks involved in an investment in any product or fund investing or trading in Digital Assets.
Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment.
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