CBDC’s Unlikely To Threaten Cryptocurrencies, Market Has Evolved: Morgan Stanley Report


As central banks worldwide continue to establish their digital currencies, one of the largest US investment banks, Morgan Stanley, says they won't be a threat to cryptocurrencies.

Analysts at Morgan Stanley believe that both central bank digital currencies (CBDCs) and cryptocurrencies would co-exist because they are not the same and serve different purposes.

CBDCs May Threaten Stablecoins But Not Crypto

In a recent report, the analysts said that while CBDCs may not affect cryptocurrency markets as they enter the space, stablecoins probably have the biggest risks in terms of competition.

However, they noted that cryptocurrencies like Bitcoin and the rest that reflect underlying assets would not be affected. BTC -12.45% Bitcoin / USD BTCUSD $ 49,387.04
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One of the analysts, Morgan Stanley's chief economist Chetan Ahya, added,

“Cryptocurrencies will still exist, as they continue to serve other use cases. For instance, some cryptocurrencies can function as a store of value as some segments of the public do not place their full faith in fiat currencies.”

Although some skeptics believe that once CBDCs are introduced, the demand for cryptocurrencies would dwindle.

For instance, the South Korea Central Bank Chief, Lee Ju-Yeol, had stated that CBDCs would reduce the demand for Bitcoin once it launches.

However, Morgan Stanley, in its report, shows this thinking is flawed. According to the analysts, the reasons for investing in cryptocurrencies appear to have evolved. Buyers are now viewing digital assets like Bitcoin as new institutional asset classes rather than replacement payment systems.

According to the bank, investors' interest in cryptocurrencies has risen over time alongside the pandemic's unprecedented monetary and fiscal policy response. That is, the current macroeconomic conditions have led to massive interest in cryptocurrencies.

Banks' Acceptance Of Cryptocurrencies

The traditional banking system seems to have mixed views regarding cryptocurrency and fiat's digital doppelganger. While most banks are adapting and supporting cryptocurrencies, some aren't.

Bank Of New York Mellon announced a crypto unit for crypto traders earlier this year, signaling its acceptance of the currency. Other banks like JP Morgan have followed suit with a raft of solutions.

But one bank that has remained anti-crypto is HSBC. HSBC adopted an anti-cryptocurrency policy and censored certain transactions associated with digital tokens' purchase and sale on its platform.

The British-based bank blocked its customers from depositing from crypto wallets earlier this year. It most recently barred customers of its online trading platform, HSBC InvestDirect (HIDC), from purchasing shares of software company MicroStrategy.

Meanwhile, central banks are increasingly taking steps and making efforts to launch their digital currencies. Research and development efforts are underway at most of the world's central banks currently.

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