Citi and Morgan Stanley's Crypto Push: A Flow-Driven Analysis

The primary driver for bank custody expansions is now a clear, material return of institutional capital. After five weeks of outflows totaling roughly $3.8 billion, U.S. spot Bitcoin ETFs posted $506.5 million in net inflows on Feb. 25, marking the highest single-day total in three weeks. This reversal is part of a broader three-day surge, with $1.1 billion in net inflows over three consecutive days coinciding with a rebound in the Coinbase Premium index, a key gauge of U.S. institutional demand.

This flow is not speculative. The data shows it is translating into outright long exposure. While CME open interest continues to fall, suggesting ETF buying reflects direct long positions rather than basis trades, the cumulative impact is substantial. Cumulative net inflows across all spot Bitcoin ETFs now stand at approximately $54.6–$54.9 billion, with total assets under management near $91 billion. This represents a significant institutional allocation, with over 6% of Bitcoin's total market cap now held in these vehicles.

The bottom line is a direct pull for custody solutions. As institutional demand tests the waters again, the need for secure, regulated custody infrastructure at major banks like Citi and Morgan Stanley is becoming a tangible business case. The recent inflows provide the first clear signal of stabilization, but sustained flows will be required to justify the long-term expansion of these services.

Bank Infrastructure: A Response to Flow

The institutional flow reversal is now triggering a direct infrastructure response. Citi's plan to launch Bitcoin custody and key management services in 2026 is a clear play for this capital. The bank aims to integrate Bitcoin into existing reporting, tax, and risk control systems, a move designed to make crypto exposure seamless within traditional banking workflows. This isn't a speculative venture; it's a targeted build-out to capture the custody needs of the growing ETF inflows.

Morgan Stanley is mirroring this strategy with a broader digital asset push. The firm has filed for spot Bitcoin, Ethereum, and Solana ETFs, signaling a commitment to the asset class. More immediately, it is planning to launch spot crypto trading on its E*TRADE platform. This dual-track approach-both custody and trading-positions the bank to serve the full client lifecycle as institutional demand ramps.

The market opportunity is massive and accelerating. The digital asset custody market is projected to grow from $708.09 billion in 2025 to $1.59 trillion by 2030. This expansion is fueled by the very institutional adoption that is now seeing ETF inflows. For Citi and Morgan Stanley, these custody and trading initiatives are the direct financial infrastructure needed to monetize that flow, turning a surge in demand into a new, high-growth revenue stream.

Catalysts, Risks, and What to Watch

The path from bank announcements to tangible flow is now defined by three key forward-looking points. First, the actual launch of infrastructure is the initial test. Citi aims to bring its crypto custody service to market in the coming quarters, while Morgan Stanley plans to launch a proprietary digital wallet later this year. These are the first tangible steps that will determine if the banks can operationalize their institutional push.

The primary risk is weak price action. Bitcoin is trading near $65,419 and has fallen 14% in February. This persistent downtrend, extending a losing streak not seen since 2018, directly challenges the narrative of institutional accumulation. A continued price decline could dampen appetite for new custody services, as it did during the recent outflow period.

The critical catalyst is whether these services can capture a meaningful share of the existing institutional flow. The cumulative ETF inflows now total approximately $54.9 billion. If Citi and Morgan Stanley's custody solutions become the default infrastructure for this capital, it would directly link their infrastructure build-out to sustained, high-value client relationships. The coming months will show if they can convert their plans into a dominant position within this growing flow.