As speculation about the upcoming approval or denial of spot bitcoin ETFs reaches a fever pitch, a group of former Citigroup Inc. executives is starting to offer securities backed by the oldest cryptocurrency that they say don’t need the blessing of U.S. regulators.
The new offering, called bitcoin depositary receipts, will be similar to American depositary receipts that represent foreign stocks. The startup, called Receipts Depositary Corporation, or RDC, said it plans to issue the first bitcoin depositary receipts to qualified global institutional investors in transactions exempt from registration under the Securities Act of 1933.
Known as BTC DRs, the offering will give institutions access to bitcoin securities through U.S. regulated market infrastructure and cleared through the Depository Trust Co., according to a release from the company.
“We are really a conversion tool for asset owners today, whether they are hedge funds, family offices, corporations, large institutional investors, that want to take their bitcoin and convert it into a DTC-eligible security and enjoy direct ownership in the U.S. clearances,” Ankit Mehta, the co-founder and chief executive of RDC and a former executive at Citigroup, said in an interview.
Broadridge Corporate Issuer Solutions will serve as the transfer agent and Anchorage Digital Bank National Association will handle custody of the underlying Bitcoin. RDC is backed by investors including Franklin Templeton, BTIG and Broadhaven Ventures, according to its press release.
This week bitcoin broke above $45,000 for the first time in nearly two years as optimism grew over the likelihood that the Securities and Exchange Commission will soon approve exchange-traded funds that invest directly in the original cryptocurrency. RDC’s offering will provide a product that’s “complementary” to bitcoin ETFs, according to Mehta. He and his co-founders Bryant Kim and Ishaan Narain worked for Citi’s depositary receipt team prior to starting RDC.
Compared with bitcoin ETFs that will be redeemed for cash, Mehta said that depositary receipts offer direct ownership of bitcoin for qualified institutions. Buying bitcoin directly isn’t the most-preferred option for some regulated institutions, he added, since crypto markets face challenges including security risks and regulatory uncertainty. Some of the challenges are similar to those once seen for Americans investing in foreign companies, which were mitigated by American depositary receipts.
“These market infrastructure issues and challenges obviously took some time to evolve in the digital-asset marketplace,” Narain in an interview, “which is why when we set up this product, we made sure we partner with the right partners to provide those segregated services that these institutions look for.”
To be clear, the oldest cryptocurrency is supposed to eliminate the need for a centralized clearinghouse since it uses a decentralized blockchain, or public ledger, that automatically verifies, records, and settles transactions between users. Bitcoin holders also can store the tokens themselves instead of relying on an independent custodian. However, the co-founders of RDC believe bitcoin depositary receipts will be something institutions are more “comfortable with.”
“Bringing market standards from traditional finance — like depositary receipts — to the digital-asset ecosystem will be a major theme heading into 2024,” Diogo Mónica, co-founder and president of Anchorage Digital, said in an email. “The majority of traditional institutions want direct exposure to bitcoin, but some are still on the sidelines due to regulatory uncertainty. For these players, using bitcoin depositary receipts unlocks the best of both worlds.”
Citigroup briefly began developing a similar product back in 2018, as Bloomberg reported. A representative for the bank declined to comment about the project in 2018. The three co-founders were in the group developing the digital asset receipts at Citi as the firm was exploring depositary receipts for a variety of asset classes. Mehta said RDC’s offering is “separate” from what was explored at Citi.
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