US-based investment giant Morgan Stanley has taken a significant step towards a new Bitcoin-focused investment product. The company has submitted a prospectus detailing the structure of its proposed Morgan Stanley Bitcoin Trust fund to the US Securities and Exchange Commission (SEC). The application, filed via Form S-1, contains important details about how the fund's Bitcoin assets will be held and how the ETF's operational structure will function. According to the application, Morgan Stanley's Bitcoin Trust fund plans to commission two major institutions for the custody of the digital assets. Specifically, Coinbase Custody and Bank of New York Mellon (BNY) will provide Bitcoin custody services for the fund. Both institutions will be responsible for securely storing the fund's Bitcoin holdings and performing the necessary transfer transactions when creating or redeeming fund shares.
Custody structure compliant with institutional standards
According to the information in the application, Morgan Stanley has structured the fund's custody infrastructure to match the security standards used by traditional financial institutions. In this context, the majority of the fund's Bitcoin holdings will be held in offline vaults known as cold storage. Cold storage significantly reduces the risk of cyberattacks by ensuring that private keys are completely isolated from internet connectivity. This aims to protect digital assets from online attacks. However, in situations such as the creation of fund shares or investors selling their shares back, a small portion of the Bitcoins may be temporarily transferred to transaction wallets to allow for necessary transactions.
The document also states that insurance is included in the custody service. However, it is noted that this insurance policy is shared with other Coinbase Custody clients and may not cover all potential losses. This is a common practice in digital asset custody services.
BNY's role in the ETF is extensive
In Morgan Stanley's planned Bitcoin ETF structure, BNY Mellon will not only provide custody services. The bank will also undertake critical tasks in the fund's management operations.
BNY will act as an administrator to manage and manage the fund's management and accounting processes. It will also maintain investor records and manage transactions related to fund shares in its role as a transfer agent. The bank will also act as a cash custodian, managing cash flows related to ETF transactions.
This structure indicates that a system quite similar to the institutional operational model seen in traditional ETFs will be established.
It is stated that Morgan Stanley Bitcoin Trust will be designed as a passive investment vehicle. This means that the fund aims to directly track Bitcoin price movements.
The fund will not use derivatives or leveraged transactions to gain exposure to Bitcoin. Instead, it will hold Bitcoin in its portfolio by purchasing it directly. Thus, investors will be able to invest in the Bitcoin price indirectly through the ETF.
The fund's daily net asset value (NAV) will be calculated using the CoinDesk Bitcoin Benchmark 4PM New York Settlement Rate as a reference. This index combines trading data from major spot cryptocurrency exchanges to determine a daily reference price for Bitcoin.
