A recent Bloomberg report revealed that a group of former Citigroup executives had introduced an investment offering called Bitcoin (BTC) depositary receipts (BTC DRs).
These securities, backed by the largest cryptocurrency in the market, are being positioned as an alternative to spot-Bitcoin exchange-traded funds (ETFs) that require approval from US regulators.
The startup behind this initiative, Receipts Depositary Corporation (RDC), plans to issue the first Bitcoin depositary receipts to qualified global institutional investors, providing them a convenient and regulated way to gain exposure to BTC.
Bitcoin Depositary Receipts Vs Bitcoin ETFs
Bitcoin depositary receipts, introduced by Receipts Depositary Corporation, offer distinct differences compared to spot Bitcoin ETFs.
While speculation about the approval or denial of Bitcoin ETFs intensifies, RDC’s offering aims to “bypass” the need for regulatory approval and provide a distinct investment opportunity. BTC ETFs require regulatory bodies’ approval, such as the US Securities and Exchange Commission (SEC).
In contrast, BTC DRs are positioned as securities that do not require a regulatory blessing. RDC claims its offering falls under transactions exempt from registration under the Securities Act of 1933.
Another key difference lies in the ownership structure. BTC ETFs typically grant investors indirect ownership of Bitcoin through shares or units of the ETF, which can be redeemed for cash. BTC DRs, however, provide institutional investors with a way to own Bitcoin-based securities.
Market infrastructure also distinguishes the two investment options. Bitcoin ETFs operate within the established framework of ETF market infrastructure, involving authorized participants, creation and redemption mechanisms, and listing on regulated exchanges.
On the other hand, BTC DRs leverage US-regulated market infrastructure and are cleared through the Depository Trust Co. This familiar market channel provides institutional investors access to BTC securities.
Addressing Institutional Hesitations
Regarding investment structure, Bitcoin ETFs function as funds directly investing in BTC, aiming to track the cryptocurrency’s price and offer investors exposure to its performance.
BTC DRs, in contrast, resemble American depositary receipts (ADRs) and represent ownership of foreign security, in this case, BTC. This structure allows institutions to indirectly hold BTC through the securities without directly participating in the cryptocurrency market.
Furthermore, Bitcoin ETFs have generated significant market anticipation, with expectations of increased liquidity and legitimacy for the cryptocurrency market.
BTC DRs, as a complementary offering, aim to address institutional concerns about directly holding BTC. The depositary receipt structure may appeal to institutions seeking regulated and familiar investment instruments within the digital asset ecosystem.
According to the report, Broadridge Corporate Issuer Solutions will be the transfer agent to ensure a robust and secure offering. At the same time, Anchorage Digital Bank National Association will handle the custody of the underlying Bitcoin.
Depositary Receipts To Drive Institutional Adoption In 2024?Diogo Mónica, co-founder and president of Anchorage Digital, believes that bringing market standards like depositary receipts to the digital-asset ecosystem will be a significant trend in 2024.
Many traditional institutions desire direct exposure to BTC but remain on the sidelines due to regulatory uncertainties. Bitcoin depositary receipts “bridge this gap, providing institutions with the best of both worlds,” according to Mónica.
By combining traditional finance market standards with the digital-asset ecosystem, RDC aims to provide institutional investors with direct exposure to BTC, overcoming challenges associated with crypto market infrastructure and regulatory uncertainties.
As the industry eagerly awaits regulatory decisions on BTC ETFs, the emergence of Bitcoin depositary receipts offers an intriguing alternative for institutions seeking to participate in the growing cryptocurrency market.
Featured image from Shutterstock, chart from TradingView.com