Morgan Stanley Hails Crypto Assets, Nasdaq Declares Its Compliance Credentials

Various traditional banking and financial companies are exploring ways to get on board the blockchain and cryptocurrency space. Two such being Nasdaq and multinational investment bank Morgan Stanley. While Nasdaq wants to curb the manipulation and scams that have plagued cryptocurrency space, Morgan Stanley is positively researching the implications and future of bitcoin.

The second-largest stock exchange in the world by market capitalization, Nasdaq, said in a paper released Thursday it has spent decades in developing mechanisms to supervise securities, currencies and other markets and it intends to integrate the same with digital currencies to stop manipulation and other scams in the space.

“Regulators, brokers and exchanges have surveillance teams that monitor activity constantly and advanced technologies to help capture and analyze abusive behaviors including pump-and-dump schemes, insider trading, wash trading as well as spoofing and layering,” according to the paper, cited by Bloomberg in a report.

Nasdaq's market-surveillance technology "SMARTS" is already licensed to exchanges, including Gemini, the crypto exchange founded by the Winklevoss twins. Crypto companies started to approach Nasdaq for this service to be integrated into the crypto space just over two years ago, but it wasn’t until late last year when bitcoin was spiking that demand increased.

“We’re now getting approached every week or two. We won’t work with all of these firms though since a lot of them are quite early stage or not reputable yet," Tony Sio, Nasdaq’s head of exchange and regulator surveillance, said in an interview, Bloomberg reported.

Nasdaq's move shows the importance of having a standardized regulations in place for the crypto space even though its underlying technology is blockchain, which is known for its anonymity. The more cryptocurrencies like bitcoin gain in popularity, the risks associated with them are also increasing. Morgan Stanley in a recent report tracked the current status of bitcoin and other cryptocurrencies.

The investment banking company released a new 50-page report updating the current status of bitcoin (including other currencies) and blockchain. According to The Block, the latest report is an update to an earlier version (by the same company) titled "Bitcoin Decrypted: A Brief Teach-in and Implications." The first report was released in December, 2017. The research wing of Morgan Stanley has published a total of 15 such research reports till date.

The report noted that bitcoin’s thesis has been “rapidly morphing” and detailed the anticipated change. The report said bitcoin started as digital cash, moved to store of value, and is now an "institutional investment class."

"The report then shows high correlation between the price of cryptocurrencies and the trading volumes. It notes that bitcoin is now increasingly traded against digital assets now — 52 percent is traded against crypto pairs while 48 percent is traded against fiat pairs," the Block reported.

It's interesting to know that while some of the traditional investment companies call cryptocurrency an asset class and want to invest in it, analysts don't share the optimism. In a note dated April 5, Capital Economics said: “We still think that Bitcoin is essentially worthless, meaning that it is likely to fare much worse than other assets in the coming months.”

The skepticism stems from the inadequate regulation in the crypto space. The legal framework and tax supervision of cryptocurrencies have not yet been fully formulated by any country. Probably once there is government involvement in this space, the financial industry and the investors might look at crypto though a different lens.