A recent report from Bloomberg has revealed that a group of former Citigroup executives has introduced a new investment offering called Bitcoin depositary receipts (BTC DRs). These securities are backed by Bitcoin and are being positioned as an alternative to spot-Bitcoin exchange-traded funds (ETFs) that require regulatory approval in the US. Receipts Depositary Corporation (RDC), the startup behind this initiative, plans to issue the first Bitcoin depositary receipts to qualified global institutional investors, providing them with 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 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
In terms of 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, on the other hand, 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.
BTC DRs aim to address institutional concerns about directly holding BTC and offer a complementary investment option to Bitcoin ETFs. The depositary receipt structure may appeal to institutions seeking regulated and familiar investment instruments within the digital asset ecosystem.
Broadridge Corporate Issuer Solutions will serve as the transfer agent for BTC DRs, ensuring a robust and secure offering. Anchorage Digital Bank National Association will handle 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.
RDC aims to combine traditional finance market standards with the digital asset ecosystem to provide institutional investors with direct exposure to BTC, overcoming challenges associated with crypto market infrastructure and regulatory uncertainties. As we await 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
Hot Take: Bitcoin Depositary Receipts Provide a Regulatory-Compliant Alternative to BTC ETFs
The introduction of Bitcoin depositary receipts (BTC DRs) by Receipts Depositary Corporation offers institutional investors a distinct investment opportunity that bypasses the need for regulatory approval faced by Bitcoin exchange-traded funds (ETFs). BTC DRs provide a way for qualified global institutional investors to gain exposure to BTC in a convenient and regulated manner. These securities do not require regulatory blessing and fall under transactions exempt from registration under the Securities Act of 1933.
BTC DRs differ from BTC ETFs in terms of ownership structure and market infrastructure. They allow institutional investors to own Bitcoin-based securities directly, while BTC ETFs offer indirect ownership through shares or units. Additionally, BTC DRs leverage US-regulated market infrastructure and are cleared through the Depository Trust Co., providing familiar access to BTC securities.
Bitcoin depositary receipts address institutional hesitations about directly holding BTC by offering a complementary investment option. The structure of depositary receipts, similar to American depositary receipts, allows institutions to indirectly hold BTC without participating directly in the cryptocurrency market. This alternative investment option may appeal to institutions seeking regulated and familiar instruments within the digital asset ecosystem.
As we look ahead to 2024, the introduction of BTC DRs could drive institutional adoption by bridging the gap between traditional finance market standards and the digital asset ecosystem. By combining these two worlds, Receipts Depositary Corporation aims to provide institutional investors with direct exposure to BTC, overcoming challenges related to crypto market infrastructure and regulatory uncertainties.
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