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Citigroup to Offer Low-Risk Crypto Product for Institutional Investors: Report

Last Updated March 4, 2021 3:38 PM
Mark Emem
Last Updated March 4, 2021 3:38 PM

Investors may now have a new way of purchasing cryptocurrencies without actually having to own them.

Manhattan, New York-based banking giant Citigroup has reportedly developed a product that could reduce the risk hedge funds and asset management firms are exposed to when they invest in cryptocurrencies. According  to the Business Insider, the instrument which was jointly developed by Citigroup’s depository receipts services team and the capital markets origination team is known as Digital Asset Receipt.

While Citigroup will issue the Digital Asset Receipt, a custodian will be responsible for holding the cryptocurrency assets. Upon issuing the receipt, Wall Street clearing and settlement services firm Depository Trust & Clearing Corp will then be informed by the financial giant. This is expected to offer legitimacy to the fledgling asset class as well as provide investors with a new way of tracking an investment within a familiar system.

‘The ADR of Crypto’

Digital Asset Receipt works in a similar way to the American Depository Receipt (ADR) which allows investors in the United States to own foreign stocks that are not traded on domestic exchanges. With the ADR, U.S. citizens and residents are able to invest in foreign stocks where a bank acts as a custodian while the investors issued a depository receipt. Having started issuing ADRs around nine decades ago, Citigroup is now one of the biggest issuers of American Depository Receipts in the world.

No information is, however, available regarding when the crypto product will be launched by Citigroup. It is also not clear how regulators would view the instrument especially coming in the wake of several bitcoin exchange-traded funds (ETFs) being rejected by the U.S. markets regulator, Securities, and Exchange Commission (SEC).

Flurry of ETF Rejections

Last month, for instance, several ETFs were turned down as CCN.com reported and this included one proposed by GraniteShares, two which had been proposed by ProShares and five leveraged and inversed ETFs proposed by Direxion. In rejecting the ETFs the SEC argued that the applicants failed to demonstrate that they had put in place measures necessary for the prevention of malpractices.

“Surveillance-sharing with a regulated market of significant size related to bitcoin is necessary to satisfy the statutory requirement that the Exchange’s rules be designed to prevent fraudulent and manipulative acts and practices,” explained the SEC.

In July the SEC also rejected a second bitcoin ETF proposal by Cameron Winklevoss and Tyler Winklevoss, popularly known as the Winklevoss twins. Despite the rejections, the applications continue to pile in and the SEC is expected to give a decision on an ETF application by VanEck SolidX Bitcoin Trust at the end of this month.

Featured image from Shutterstock.