New-York based financial service giants Citigroup has created a new investment product which will make it easier and less risky for accredited investors to bet on cryptocurrency, according to Business Insider citing anonymous sources.
The product named ‘Digital Asset Receipt’ was developed by Citigroup’s depository receipts services team and the capital markets origination team.
How Digital Asset Receipt will work.
According to reports, Digital Asset Receipt (DAR) will allow these investors to purchase cryptocurrencies without actually owning them or go through the stress of managing with crypto wallet and keys. This means that institutional investors will avoid some of the risks associated with holding cryptocurrencies while benefiting from investments in them.
The underlying principle for DAR is similar to that of American Depositary Receipts (ADR), a type of security that allows investors in the U.S. to own foreign stocks that are not traded on domestic exchanges. Citigroup has become of the biggest issuers of the ADR since it was introduced in the 1920s.
Just like in the ADR where banks assumed custody of the foreign stocks and issued receipts, the responsibility of holding the actual cryptocurrency in the DAR system will fall on a crypto custodian service, while CitiGroup issue receipts.
Clearing and settlement services firm, Depository Trust & Clearing Corp will be informed once the receipts are issued as this will help investors to easily track the asset.
The SEC, Crypto ETFs, and Crypto ETNs
Citigroup’s product comes at a time when the U.S. Securities and Exchange Commission seems skeptical of crypto trading instruments aimed at institutional investors. The SEC is yet to approve a crypto-related Exchange Traded Funds (ETFs) having rejected several proposals for Bitcoin ETFs.
The commission abruptly halted trading in two crypto-related products over what it describes as market confusion over the products. The products which are best described as Exchange Traded Notes (ETNs) were suspended for 10 days because they were portrayed as ETFs, the SEC noted.
It’s not known how the SEC will receive Citibank’s Digital Asset Receipt when and if it is launched. For now, there’s no information about the launch timetable for the new product.