Morgan Stanley and Galaxy Digital offer ultra wealthy clients crypto for ETP loans

Morgan Stanley Wealth Management and Galaxy Digital just launched a referral partnership that allows qualified clients to lend their crypto assets to be used as collateral in exchange for receiving shares of spot crypto exchange-traded products.

This deal is designed for wealthy investors who want to merge their digital assets into traditional brokerage portfolios. According to Morgan Stanley’s (NYSE: MS) press release, clients can lend Bitcoin, Ethereum, or Solana to Galaxy Digital (NASDAQ: GLXY), who would then work with an authorized participant to deliver corresponding ETP shares directly into the client’s account.

Galaxy Digital is also reducing its transaction minimum from $25 million to $5 million for clients referred through Morgan Stanley, and both firms expect onboarding times to reduce by up to 75%, compared to the current onboarding period that can take over four weeks.

Alison Nest, the Head of Investment Solutions Products at Morgan Stanley Wealth Management, also stated that “This referral arrangement is a big step in bridging traditional finance and decentralized finance.”

How will Morgan Stanley and Galaxy Digital’s partnership work?

According to the press release, Morgan Stanley is not executing the transactions itself. Instead, it refers clients to Galaxy Digital on an unsolicited basis for onboarding and execution. Galaxy retains responsibility for all account decisions, and Morgan Stanley does not receive compensation for these referrals.

Galaxy’s disclosed fees for the service range from 15 to 25 basis points, depending on the specific transaction.

The ETP shares provided in this partnership can include the Morgan Stanley Bitcoin Trust (MSBT), managed by Morgan Stanley Investment Management. Once these shares are deposited into a client’s brokerage account, they possess margin and lending functionality, allowing clients to use them as collateral within their traditional portfolios.

Zane Glauber, Global Head of Distribution at Galaxy, shared that “the lowered minimums and faster onboarding are designed to make it easier for clients to integrate digital assets alongside traditional investments.”

Morgan Stanley’s broader crypto push

The Galaxy referral is the latest in a series of crypto initiatives by Morgan Stanley. The bank first started offering wealthy clients exposure to Bitcoin through Galaxy Digital funds back in 2021. More recently though, Morgan Stanley has filed with the SEC to introduce its own Bitcoin and Solana exchange-traded funds, naming Coinbase and BNY Mellon as custodians for the proposed Bitcoin trust, as Cryptopolitan  previously reported.

Morgan Stanley  also applied for a de novo national trust bank charter from the Office of the Comptroller of the Currency to establish the “Morgan Stanley Digital Trust.” The move would enable the bank to provide direct custody services for digital assets, placing it in the same category as crypto-native firms like Coinbase, Crypto.com, and BitGo that have sought or obtained similar regulatory approvals.

The timing of this expansion is also interesting, as Morgan Stanley is growing its crypto offerings while most spot Bitcoin ETFs are facing asset depletion.

U.S. spot Bitcoin ETFs experienced 13 consecutive days of outflows through Wednesday, losing approximately $4.4 billion since mid-May. That streak ended on Thursday when BlackRock and Morgan Stanley canceled out the withdrawals and dragged flow rate to $3.05 million net inflow.

According to SoSoValue data, BlackRock’s IBIT attracted $47.66 million in inflows on Thursday, even while other funds (including Fidelity’s FBTC, Bitwise’s BITB, and Ark’s ARKB) continued to experience outflows.

Morgan Stanley now joins BlackRock as one of the few issuers recording positive flows during the broader exodus, as Cryptopolitan previously reported.

Citi told clients this week that flows into spot Bitcoin ETFs account for approximately 45% of weekly price movements in BTC, highlighting them as the most effective metric for tracking investor adoption.

How will Morgan Stanley’s crypto push work out?

Morgan Stanley’s referral model enables it to avoid directly handling cryptocurrency, allowing the bank to color inside the lines while allowing clients to access crypto ETPs.

Whether this strategy will attract significant volume at the $5 million minimum remains to be seen.

Despite this initiative, the SEC has not yet granted approval for the Morgan Stanley Bitcoin Trust or the Solana trust to begin trading. Furthermore, because Galaxy Digital acts as the intermediary, clients are required to perform their own due diligence on the unaffiliated firm before moving forward with the process.

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