According to Business Insider’s Frank Chaparro, sources close to Citibank revealed that the $175 billion New York-based bank will offer crypto custody solutions to institutional investors.
Through the launch of a product called Digital Asset Receipt (DAR), Citigroup will enable institutional investors to invest in cryptocurrencies in a fully insured and regulated manner.
Similar to ETFs
Conceptually, a DAR is similar to exchange-traded funds (ETFs) as investors do not actually have to own the stock or asset that is represented by DAR. For example, Citigroup has been offering DARs based on foreign stocks which US-based investors cannot purchase.
By owning DARs issued by Citibank, investors in the US essentially possess instruments that represent the value of the stocks or assets that are owned by Citibank on behalf of its consumers.
With Bitcoin, Citibank would issue DARs which its clients will be able to purchase equipped with insurance, protection, transaction monitoring, and other systems that are required by the financial regulators of the US. By investing in DARs, institutions will be able to hold instruments that represent the value of Bitcoin.
Chaparro, a journalist at Business Insider, wrote:
“The bank will alert the Depository Trust & Clearing Corp, a Wall Street middleman that provides clearing and settlement services, once it’s issued the receipt, one of the people said.”
Citigroup is still in an early stage in issuing DARs based on Bitcoin. Analysts have stated that the emergence of a wide range of institutional products like Coinbase Custody, Goldman Sachs custody, and Citigroup DARs will improve the liquidity and infrastructure of the global crypto market.
Impact on the Market
Most major banks based in the US including Goldman Sachs, JPMorgan, Citigroup, and Morgan Stanley are cautious in dealing digital assets and issuing publicly tradable instruments on top of cryptocurrencies due to the regulatory uncertainty in the region.
Goldman Sachs and Citigroup are said to be the first banks to offer crypto custody solutions in the near future, but representatives from both banks have emphasized that the two financial institutions are early in their process of entering the cryptocurrency market.
Hence, whether it is Bitcoin ETFs, ETNs, or custody solutions, the earliest period in which publicly tradable instruments will be released to the public would be in 2019.
Most recently, Sweden-based XBT Provider expanded its Bitcoin ETN to US markets. Less than a month since its launch in the US, the Bitcoin Tracker One ETN was suspended by the US SEC.
Once institutional products hit the market and pension funds, hedge funds, and large-scale conglomerates take interest in cryptocurrencies as stores of value that are not dependent on the broader financial market, a large sum of capital will flow into the cryptocurrency market via custody solutions.
The optimism expressed by billionaire investor Mike Novogratz towards the next mid-term rally of cryptocurrencies that could potentially be triggered by the entrance of institutional investors have increased the interest towards robust crypto custodian solutions over ETFs, which are highly unlikely to be approved by the SEC in the months to come.