Morgan Stanley Bitcoin ETF Retains Clients: Only Bitcoin Price Drops

The first quarterly report of the Morgan Stanley Bitcoin Trust tells a two-sided story: on one hand, a robust fundraising, and on the other, an accounting loss almost entirely linked to the drop in Bitcoin's price. The Morgan Stanley Bitcoin ETF, also known by the acronym MSBT, recorded $371.1 million in gross contributions during its first 85 days of operation, a figure that signals a genuine interest in the product launched on NYSE Arca. At the same time, however, the fund closed the period with a decrease in net assets amounting to $66.8 million, almost entirely attributable to the unrealized depreciation of Bitcoin.

• Key Points

• Strong fundraising in the first 85 days of the trust's existence

• The accounting loss and the weight of Bitcoin's depreciation

• Limited redemptions, but with opaque margins

• Outstanding shares continue to grow

• The crypto market landscape in which the ETF operates

• The Morgan Stanley Bitcoin ETF raised $371.1 million in gross contributions in the first 85 days.

• The operational loss of $66.8 million is almost entirely due to the unrealized depreciation of Bitcoin, not capital flight.

• Redemptions accounted for only 1.42% of gross contributions between April 7 and June 30.

• Outstanding shares rose to 21.74 million as of July 31, +23.17% compared to June 30.

The trust issued 17.9 million shares and only redeemed 250,000 during the observed period, a ratio that indicates a decidedly imbalanced demand towards the influx of new capital. In terms of baskets, the net creation translated into 1,790 creation baskets against only 25 redemption baskets. The composition of the $371.1 million raised shows a mix of $200.3 million in cash and $170.8 million in Bitcoin contributed directly as consideration for the new shares. The fund, launched on April 8 with an annual management fee of 0.14%, closed its first month of trading without any daily redemptions, a detail that reinforces the idea of an initial phase dominated almost exclusively by inflows.

The decline of $66.8 million in net assets does not equate to a wave of selling by investors. The unrealized depreciation of Bitcoin accounted for $66.17 million, almost 99% of the total. The rest can be explained by $618,611 in realized losses from the actual sale of Bitcoin and $72,288 in fees paid to the fund's sponsor. This is a distinction that matters: the impact on the performance of the Morgan Stanley Bitcoin ETF reflects the movement of the underlying asset's price, not a capital outflow from investors.

Redemption distributions remained marginal, accounting for only 1.42% of gross contributions during the period from April 7 to June 30. Trust-level creations and redemptions go through Authorized Participants, authorized operators who manage baskets of 10,000 shares at net asset value, while common investors typically trade MSBT shares on NYSE Arca. However, these basket transactions do not allow for identifying who is behind the sales or what their motivation is: the document does not therefore establish whether retail activity actually drove the recorded redemptions.

After the reporting period closed, the growth trend did not stop. As of July 31, outstanding shares had risen to 21.74 million, an increase of 4.09 million compared to June 30, equivalent to 23.17%. This data confirms that net creation activity continued even beyond the window of the first 85 days, although the filing does not identify which investors or distribution channels generated this growth.

The broader context remains relevant for interpreting the fund's numbers. The overall crypto market is currently valued at $2.17 trillion, with a 24-hour trading volume of $37.23 billion. Bitcoin's dominance stands at 58.35%, confirming the central role of the asset within market balances and, consequently, the direct impact that its price fluctuations have on products like the Morgan Stanley Bitcoin ETF.