Bank of America chasing Bitcoin FOMO: Giants like Morgan Stanley compete to submit crypto ETF applications

Morgan Stanley submitted applications for spot Bitcoin and Solana ETFs on January 5, 2026, marking another significant milestone following U.S. banks opening client access to cryptocurrencies. Starting from January 2026, over 15,000 financial advisors at U.S. banks are authorized to proactively recommend allocating 1% to 4% of client portfolios into cryptocurrencies, particularly four spot Bitcoin ETFs.

Driven by a regulatory environment shifting towards support and a surge in client demand, traditional financial institutions are accelerating their embrace of digital assets to avoid missing out on this emerging asset class.

Institutional Actions

Major U.S. financial institutions are entering the crypto space at an unprecedented pace. Morgan Stanley’s ETF application signifies traditional financial giants directly participating in issuing crypto products, moving beyond merely providing third-party product channels. The bank, managing $1.6 trillion in assets, filed an S-1 seeking to launch its own spot Bitcoin and Solana ETFs, marking the first attempt by a large bank to issue such products.

U.S. banks’ policy changes are equally noteworthy. Starting January 5, 2026, the bank allows wealth management clients to allocate 1% to 4% of their portfolios into cryptocurrencies. Chris Hyzy, Chief Investment Officer of U.S. Bank Private Bank, stated: “For investors enthusiastic about innovative themes and capable of tolerating high volatility, a moderate allocation of 1%-4% in digital assets is a suitable choice.”

This shift aligns U.S. banks with their competitors. Morgan Stanley had already recommended investors allocate 2%-4% to cryptocurrencies as early as October 2025.

Strategic Deployment

Traditional financial institutions’ foray into crypto is not a single action but a multi-layered strategic layout. These banks are meeting diverse client needs through various service models, from simple product access to deep involvement in market infrastructure.

U.S. Bank has chosen to start with wealth management, allowing clients to access cryptocurrencies via regulated ETFs. The bank’s chief investment officer team covers Bitcoin ETFs including Bitwise Bitcoin ETF (BITB), Fidelity Wise Origin Bitcoin Fund (FBTC), Grayscale Bitcoin Mini Trust (BTC), and BlackRock iShares Bitcoin Trust (IBIT). Morgan Stanley has taken a further step by directly applying to issue its own spot Bitcoin and Solana ETFs. This shift from distribution to issuance demonstrates increased confidence among large banks in the crypto asset space.

Meanwhile, several banks are developing more advanced crypto services. Citibank plans to launch cryptocurrency custody services before 2026. Charles Schwab has outlined a timetable to introduce spot Bitcoin and Ethereum trading, targeting mid-2026.

Driving Factors

Multiple drivers underpin traditional banks’ strategic moves into crypto. Significant improvements in the regulatory environment provide clear pathways for institutional participation. The U.S. Securities and Exchange Commission (SEC) approved general listing standards for crypto exchange-traded products (ETP) in September 2025, reducing product listing cycles to 75 days.

More importantly, the SEC removed specific crypto review items from its 2026 review priorities, signaling a shift from strict scrutiny to routine regulation. SEC Chairman Gary Gensler stated: “The review priorities published today should enable companies to engage in constructive dialogue with SEC examiners.”

Strong client demand is another major driver. Nancy Fahmy, head of U.S. Bank’s Investment Solutions division, noted: “This policy update reflects the continued growth in client demand for digital asset allocations.” Under this demand, three of the four largest U.S. brokerages have lifted restrictions on crypto investments. U.S. Bank, Morgan Stanley, and Wells Fargo Advisors have all opened channels for crypto asset investments.

Market Opportunities and Capital Potential

Behind the crypto strategies of U.S. financial institutions lies enormous market opportunities and capital potential. U.S. Bank serves approximately 70 million clients and manages over $2 trillion in assets; Vanguard manages 50 million accounts with $11 trillion in assets. Even if these clients allocate only 1% of their portfolios to cryptocurrencies, it could bring about approximately $130 billion in capital inflows, more than doubling the total inflow into U.S. spot crypto ETFs since their inception.

Bitwise forecasts that over 100 crypto-related ETFs will be launched in 2026. The surge in ETFs will solidify the market dominance of Bitcoin, Ethereum, and Solana, but other cryptocurrencies may face severe “stress tests.”

Senior ETF analyst James Seffert supports this forecast but also warns: “We will witness a large number of ETFs liquidating.” This pattern of “explosive growth and rapid淘汰” will mark the next phase of crypto ETF development.

Market Competition and Potential Risks

As more participants enter the market, the crypto ETF sector faces increasing competition and centralization risks. Currently, Coinbase holds the majority of assets in crypto ETFs, accounting for 85% of the global Bitcoin ETF market. In Q3 2025, Coinbase’s custody assets reached $300 billion. This centralization of custody presents systemic risks, prompting U.S. banks like U.S. Bank to restart institutional Bitcoin custody plans, with Citigroup and State Street exploring crypto ETF custody collaborations.

High-fee repetitive products face pressure to be淘汰. As the market becomes crowded, issuers will further lower flagship product fees, making high-fee repetitive products less competitive. Seffert predicts a wave of crypto ETF liquidations by late 2026 to early 2027. Funds with assets below $50 million often cannot cover costs and tend to close within two years.

Asset Performance and Market Outlook

Major cryptocurrencies are showing divergent performance amid accelerated institutional deployment. As of January 7, 2026, according to Gate data, Bitcoin (BTC) is priced around $87,000, down from its peak of over $126,000 in early October 2025. The crypto market has diverged from traditional financial markets. Since the beginning of the year, Bitcoin has declined about 7%, while the S&P 500 has risen over 15%.

The proliferation of ETFs may intensify market divergence. For less liquid assets, market volatility could lead to complete depletion of borrowed funds, forcing ETFs to suspend creations, causing products to trade at premiums until supply recovers. For mainstream assets like Bitcoin, Ethereum, and Solana, more ETF products will deepen the “spot-derivative linkage,” narrowing price gaps and reinforcing their status as “core collateral for institutions.”

When Morgan Stanley’s applications for Bitcoin and Solana ETFs were announced, the traditional finance sector did not show past skepticism or resistance but instead a sense of urgency to catch up. Vanguard has opened its platform to third-party crypto ETFs and mutual funds, and Charles Schwab has outlined a timetable to launch spot Bitcoin and Ethereum trading. Coinbase currently custody 85% of global Bitcoin ETF assets, but U.S. Bank, Citigroup, and State Street are accelerating the development of competitive custody services. Market expectations are for over 100 crypto-related ETFs to launch in 2026, but analysts warn that a significant portion may be淘汰 within two years. This scenario is no longer just the domain of speculators but has become a serious asset class that the $13 trillion wealth management market is paying close attention to.