Citigroup Planning Innovative Crypto Trading Mechanism

Another leading investment bank has decided to give a shot at cryptocurrencies. The New York City-based Citigroup Inc. (C) has developed a new digital receipt-based mechanism for investing in cryptocurrencies such as Bitcoin, Business Insider quotes a person familiar with the development.

ADR-like Crypto Offering by Citi

As per the details sourced by Business Insider, Citi’s offering is based on digital asset receipts or DARs. Such DARs will be the virtual crypto certificates that will be issued by Citigroup to the cryptocurrency investors and will enable indirect ownership of the cryptocurrency tokens in their name. Citigroup will act as an agent which will issue the DARs to the interested crypto investors for their preferred amounts. Since the proposed working mechanism is believed to be falling under the gamut of the regulatory framework, it allows for a relatively secure and convenient mode of trading in cryptocurrencies for common participants.

To draw a parallel, DARs would work similar to the American depositary receipts (ADR), a negotiable certificate issued by a U.S. bank that represents a specified number of share(s) in a foreign stock that is traded on a U.S. exchange. The depositary receipt issuing bank maintains the foreign stock. In case of DARs, the cryptocurrency tokens will be held securely by a separate cryptocurrency custodian, which will ensure institution level security for crypto assets of the investors who don’t have to worry about holding them in their own individual wallets which may be prone to thefts, hacks, and loss of private keys. The investor may simply hold the DAR as a digital holding in their online accounts, similar to holding a share in the demat account. The bank will maintain the necessary books and records of who bought/sold what cryptocurrency. (See also, Goldman Sachs Is Planning a Crypto Custody Service.)

Citi is amongst the largest ADR issuers across the globe and has maintained an established track record of ADRs since 1928. The similar DAR-based offering can add the much needed regulatory-compliance layer to the cryptocurrency investments.

It remains unclear how the American financial watchdog will classify such a DAR-based offering, and whether it will secure the necessary approval. Time and again, the U.S. Securities and Exchange Commission (SEC) has rejected the numerous applications seeking approval for cryptocurrency-based exchange-traded funds (ETF). (For more, see When Will The SEC Approve A Bitcoin ETF?)

If Citi’s DAR-based offering sees the light of day, it will prove to be a game changer for the cryptocurrency trading marketplace.

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.

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