Morgan Stanley's complex bitcoin bet draws $104M during rout

As digital-asset prices unravel, Morgan Stanley has drawn outsized demand from wealthy clients for a complex, new bitcoin-linked product.

The bank this month sold $104 million of structured notes tied to BlackRock's iShares Bitcoin Trust, in a deal five times larger than the next most popular crypto-linked note currently outstanding in the U.S., according to data from Structured Products Intelligence, part of WSD. 

The product offers clients exposure to the token's swings — but within strict boundaries. The two-year notes, known as dual directional autocallable trigger plus, promises enhanced payouts if the ETF stays flat or rises at maturity, and modest gains if it falls less than 25%. If the ETF drops far enough, investors take losses in full, with no cushion, according to a regulatory filing.

It shows how bitcoin is being recast. The cryptocurrency still trades like a speculative wager, but financial institutions are increasingly treating it like a fully fledged asset class — something that can be slotted into risk models, hedged with options, and packaged up for private-wealth clients. Firms including Goldman Sachs Group and JPMorgan have issued structured notes in recent months, also using IBIT as the foundation for their crypto exposure.

"Structured products are becoming the safest way for mainstream investors to touch crypto-level volatility without taking crypto-level risk," said Tiago Fernandes, the head of data and platform at WSD. "Being issued in a U.S. security that has some protection is extremely interesting for investors."

A spokesperson for Morgan Stanley declined to comment on the issuance. 

Bitcoin has plunged almost 30% from its recent peak — a reminder that even as retail investors embrace it, the world's largest cryptocurrency remains far from tame. Now Wall Street is doing what it knows best: building products that aim to contain the chaos for investors who are curious but cautious. 

Early crypto-linked notes were often tied to equities like Coinbase Global or Strategy, adding layers of company-specific risk on top of bitcoin exposure. IBIT's emergence as a clean, regulated vehicle has allowed banks to pivot to more direct structures — ones that are easier to price, manage for risks and sell. Even with outflows during the recent downturn, the ETF has amassed $72 billion in assets since its launch at the start of last year. With more liquidity, banks can now offer crypto exposure in ways that weren't possible with native tokens.

The Morgan Stanley note is the latest example. If IBIT closes at or above its initial level after one year, the note is automatically called and returns the investor's principal plus around 28%. If the ETF is lower but still above 75% of the starting price, the note continues to maturity with potential gains of up to 25%. But if it falls below that floor, investors absorb the full loss, mirroring the ETF's decline.  

"For retirees I would tell them to avoid this note like the plague," said Gary Garland, the founder of Integrated Wealth Solutions. "For youngsters who would otherwise invest in bitcoin? I think there's something there — still a lot of risk, but less risk than buying naked IBIT."

That payoff structure has gained traction among high net worth investors looking to access high-volatility assets, without having to stomach bitcoin's day-to-day volatility.

For bitcoin, it's a twist of fate: a token built to bypass Wall Street is now being reshaped by it. The recent selloff hasn't derailed that process — if anything, it may fuel fresh demand for risk-mitigating structures, while testing how well the new trades hold up.

Those IBIT-related notes are part of the boom in structured products this year as investors flock to debt-like securities that blend the kind of principal protection offered by fixed income with a higher return than most bonds offer. But they're riskier than similarly structured stock or index-based products due to bitcoin's higher volatility, according to Garland. 

"This is the junk bond of structured notes — high octane, high potential, and absolutely not for the faint of heart," he said.