Morgan Stanley and Galaxy Digital have partnered to let wealthy clients lend crypto for spot ETF shares, a move enabled by new SEC rules. The deal lowers the investment minimum to $5M and cuts onboarding time by 75%. This initiative bridges traditional and decentralized finance, making crypto assets bankable as collateral, even as the broader Bitcoin ETF market has recently seen significant outflows.
Morgan Stanley Galaxy lending partnership
- ▪Morgan Stanley Wealth Management clients can lend Bitcoin, Ethereum, or Solana to Galaxy Digital in exchange for shares of spot crypto exchange-traded products
- ▪The in-kind conversion process is expected to reduce onboarding times by up to 75% from a period that could previously take over four weeks
- ▪The partnership is a referral arrangement where Morgan Stanley refers clients to Galaxy Digital on an unsolicited basis and receives no compensation
- ▪For clients referred by Morgan Stanley, Galaxy Digital has lowered its minimum transaction size from $25 million to $5 million
- ▪Once deposited in a client's brokerage account, the ETP shares can be used as collateral for margin and lending
SEC in-kind creation redemption rules
- ▪The in-kind creation process allows clients to convert crypto to ETP shares without a taxable sale of the underlying asset
- ▪The partnership was made possible by the SEC's July 2025 approval of in-kind creations and redemptions for crypto ETPs
Bitcoin ETF outflows decline
- ▪The Morgan Stanley Bitcoin Trust (MSBT) completed its first month of operation without a single day of net redemptions
- ▪US spot Bitcoin ETFs experienced $4.4 billion in net outflows over 13 consecutive days leading into early June 2026
Institutional crypto collateral models
- ▪JPMorgan accepts shares of BlackRock's IBIT bitcoin ETF as collateral and reportedly planned to allow direct pledging of BTC and ETH by year-end 2025
- ▪A third model involves using tokenized assets, like BlackRock's BUIDL Treasury fund, as yield-bearing margin collateral for crypto trading
- ▪Three primary models for institutional crypto collateral are emerging: ETP collateral, direct crypto collateral, and tokenized collateral substitution
Bank digital asset infrastructure
- ▪BNY Mellon is building a digital asset platform combining custody, collateral management, financing, and payments
- ▪Morgan Stanley has applied for a national trust bank charter from the OCC to establish the "Morgan Stanley Digital Trust" for direct custody services
Crypto leverage deleveraging risk
- ▪Galaxy Research estimated that crypto-collateralized lending reached $73.59 billion in the third quarter of 2025
- ▪On June 3, 2026, the crypto market recorded $1.8 billion in forced liquidations, the largest single-day amount since February 2026
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