Morgan Stanley Wealth Management has struck a referral agreement with Galaxy Digital. Qualified clients can lend out cryptocurrency in exchange for shares in spot-based crypto ETFs, including the Morgan Stanley Bitcoin Trust (MSBT).

Structures allow investors to move their existing crypto holdings into regulated brokerage products without selling. This lowers the barrier to entry and shortens the onboarding process, thus giving more people access to approved wealth management solutions for those who already own digital assets.

Here's how the in-kind referral works

A client lends specific assets like Bitcoin (BTC), Ether (ETH), or Solana (SOL) to Galaxy. Once Galaxy confirms they can settle the loan in ETP shares, they coordinate an in-kind creation with an authorized participant.

The shares then land in the client's chosen account. Since the cryptocurrency is lent out and not sold, the process avoids a taxable realization and the risks associated with converting to cash.

MSBT, which launched in April as the most affordable U.S. Bitcoin ETF, is at the core of the product offering. The bank has already allowed its wealth advisors to recommend Bitcoin funds to their clients.

Lower minimum requirements in a bearish market

Galaxy will reduce its lending minimum for referrals from Morgan Stanley from $25,000,000 to $5,000,000. Onboarding, which currently can take over four weeks, could in some cases become up to 75% faster.

The timing is noteworthy. Bitcoin is trading near $60,749 after dropping about 4% in a day, while Ether is around $1,588 and Solana near $65, both significantly down over the past month.

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Bridging traditional finance and DeFi

The agreement builds on Galaxy's New York license and previous work to launch European crypto ETPs alongside DWS.

"This referral agreement represents a significant step forward in bridging traditional finance and decentralized finance, giving more investors easier opportunities to diversify," states an excerpt from the announcement, referencing Alison Nest, head of Investment Solutions Products at Morgan Stanley Wealth Management.

At the same time, Galaxy highlighted the advantage for clients wanting flexibility between the two worlds.

"Simplified onboarding and lower transaction minimums make it easier for clients to integrate digital assets alongside traditional investments, supporting a holistic approach to wealth management," reads the press release, referencing Zane Glauber, Global Head of Distribution at Galaxy.

The agreement ensures that clients' assets and fees remain within Morgan Stanley's ecosystem while Galaxy handles the lending and creation work.

Whether lower minimum requirements will also lead to steady crypto inflows into ETPs in a weaker market remains to be seen in the coming weeks.