The high volatility of Bitcoin and other cryptocurrencies is one of the reasons why they have not won many friends in the institutional investment world. Investors from Wall Street have been looking for ways to invest in cryptocurrencies without actually owning them.
It now looks like investment bank Citigroup has found a way for them to do just that.
DAR to serve as crypto’s ADR
Reports by Business Insider have suggested that the New York-based investment bank has created what it terms Digital Asset Receipts (DARs). This investment tool will make it possible for customers to invest in cryptocurrencies without having to own them.
The report added that the DAR will function similarly to Citigroup’s American Depositary Receipt (ADR) services. Since 1920, ADR has enabled investors to trade foreign stocks which are otherwise absent from the local exchanges.
The sources cited by Business Insider stated that they expect the product to be a security structured so that custody, settlement, and others would fit into the existing systems and regimes.
The cryptocurrency will be in the possession of a custodian. Investment can be made via the Depository Trust & Clearing Corporation which is a finance company that allows Wall Street firms to clear and settle investments.
With DAR, Citigroup has made it possible for assets managers and hedge funds to invest in digital currencies that they already know and trust their projects.
The sources claimed that the investment bank is hoping to negate the aversion towards digital assets by making it less risky and trustable.
At this point, Citigroup has not made any official announcement on the matter, thus it is still unknown if the project will be launched or when it will be released.
The report, however, pointed out that Citigroup is already reaching out to potential partners in this business.
If the project is launched, it is still unclear how the U.S SEC and other regulatory agencies will view the DAR.
Over the past few months, the SEC continues to state that the cryptocurrency market is not sufficiently regulated. The commission is wary that the markets are still prone to price manipulation and this is not good for Bitcoin ETFs.
This concern has led to them rejecting all the Bitcoin ETFs that has been submitted. There is optimism that the commission will change its stance by next year.
Goldman Sachs also working on institutional products
Citigroup is not the only Wall Street bank that is looking to bring institutional investors to the crypto market. Goldman Sachs has recently clarified that it is also working on custodial services.
The bank’s CFO R. Martin Chavez revealed that the investment bank is now working on a bitcoin derivative known dubbed non-deliverable forwards. He added that they are OTC derivatives that will be settled in U.S Dollars.
The product will have the BTC/USD price established by a set of exchanges as its reference point.