The New York based bank, Citigroup Inc. have may well have potentially cracked the cryptocurrency code, as they have reportedly developed a new mechanism for investment. This information was revealed by an inside person of knowledge, who did not want identity to be disclosed.
The bank envisages to act as an agent issuing Digital Asset Receipts (DARs), to enable proxy trading without direct ownership of the underlying coins. This may well prove to be the most direct way of investment in cryptocurrencies without actually owning them and this structure would place cryptocurrencies within regulatory frameworks while giving big investors like Wall Street and other hedge funds a less risky way of investing in the fledging market.
How DAR works
The DAR works much like an American Depository Receipt, the ADR, which has been around for decades and gives US investors the ability to invest in foreign stocks that aren’t traded on US exchanges. The foreign stock is still held by a bank, which then issues the depository receipt.
With DARs, the cryptocurrency will be held by a custodian and the DAR is issued by Citigroup. Once the receipt has been issued, clearing and settlement middleman services from the Depository Trust and Clearing Corporation Wall Street will be made involved by the bank. This is an important aspect in the proposed system, as it provides an important layer of legitimacy and gives investors a way to track investment within the system.
Citigroup has yet to make plans public, which compelled the source to keep their identification, however, upon asking, a Citigroup spokeswoman declined to comment on the bank’s plans. Hence, it is unknown what stage of development the project is at the moment, which is a collaboration between the bank’s capital markets team and the depository receipts team.
Citigroup and cryptocurrencies
Citigroup boasts its status as one of the largest ADR issuers of the world. It started issuing depository receipts in 1928 and has won numerous awards for its offerings.
Citi’s participation in the crypto space has been rather held back due to its wild price swings, repeated hacks of exchanges and wallets and a general hesitancy from Wall Street in its tread with the cryptocurrency market. In the past, it has also banned clients from making cryptocurrency related purchases with its credit cards.
However, Citi has been hiring for people in this sector. Quite recently this year, according to a Linkedin job ad, the company had been seeking a vice president and senior vice president to explore risks associated with money laundering in bitcoin, cryptocurrencies and other nascent technologies.
Regulators’ view of DAR
It is still rather unclear how the U.S. crypto regulatory authorities, mainly the SEC will view DARs, given its recent cautious approach toward virtual currency-linked exchanges. On Sunday, the SEC temporarily suspended trading in two crypto-linked exchange-traded platforms, upbringing confusion regarding its long term approach towards the assets.
Certainly worth looking out for, this space.