With the kind of popularity and the future cryptos hold, institutions defiantly seem to be interested in investing. The only roadblock is how and when can this huge sum start flowing, an answer that every crypto enthusiast is waiting. While all wait for the Bitcoin ETF to come in, Citigroup seems to have cracked the code to bring this money into the crypto markets.
Digital asset receipt: Citi’s way to get institutional monies to cryptos
Citi, the New York-based bank has come up with perhaps the most direct way to invest in cryptocurrencies without actually owning them, according to people with knowledge of the plans. Using this way, the structure would place cryptocurrencies within existing regulatory regimes and give big Wall Street investors like asset managers and hedge funds a less risky way of investing in the fledgling asset class.
Citi has developed an instrument it’s calling a Digital Asset Receipt or DAR. It works much like an American Depository Receipt or ADR, which has been around for decades to give US investors a way to own foreign stocks that don’t otherwise trade on US exchanges. The foreign stock is held by a bank, which then issues the depository receipt.
In this case, the cryptocurrency is held by a custodian and the DAR is issued by Citigroup, the people said. The bank will watchfully inform 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. That lends an important layer of legitimacy and gives investors a way to track the investment within a system that they’re already familiar with, the person added.
This news has left a lot of enthusiasm in crypto followers and investors. Even Joseph Young tweeted the same saying
“Improvement in institutional infrastructure (Coinbase, Goldman, Citigroup) is crucial to bring in massive sums of capital to crypto.”
$175 billion Citigroup is the latest bank to offer crypto custody solution, Business Insider and @fintechfrank report.
Improvement in institutional infrastructure (Coinbase, Goldman, Citigroup) is crucial to bring in massive sums of capital to crypto.https://t.co/jhJyum09ZV
— Joseph Young (@iamjosephyoung) September 10, 2018
Institutional money waiting to enter cryptos
Cryptocurrency traders have been hoping for the inclusion of institutional money for half of the year, hoping to improve their potential earnings with new fiat options. Every news that is in favor of institutional money entering the cryptocurrencies takes the market higher. Even though such news gives a temporary boost to the prices, everyone is still in a dilemma that why it taking such a long time to come in. Institutional monies may come in big, but they comply with a lot of regulations and control measures before they invest. Things will have to be in compiled before this huge money enters the market. The first step towards bonding these currencies will be regulation, which many countries are attempting to establish. One of the major concerns is to have a specific framework for their investment opportunities. Nick Cowan, who is the CEO of the Gibraltar Blockchain Exchange (GBC), commented on Bitcoin’s future.
“[GBX] fundamentally believe that the technology is here to stay,” begins Nick Cowan, on bitcoin. “We fundamentally believe in adoption…particularly institutional, but what will accelerate that, I think, is the implementation of certain regulations: consumer confidence, investor protection, transparency, and those sorts of issues, which, at the moment, have been holding back a number of major players who might come into this market.”
After regulation, comes security. Institutional Investors need a stronger level of security that gives them financial solutions, which have to include custodial services. Kimley Kadoche, who is the head of Investor Relations for LGO and is set up to launch their institutional investment exchange, said that those type of investors does not have faith in their infrastructure. For these investors, the market is not properly prepared.
“There’s always an issue with the custodian, KYC procedures are not very safe, and also we’re waiting for the SEC to be fully transparent on what regulation and actions they want to take regarding digital assets,”
The third step to consider is liquidity. Institutional traders want to make big purchases, and many cryptocurrencies do not have the right amount of fiat currency to back up their investments. Big names like Bitcoin and Ethereum have the greatest likelihood of liquidity, but a large contribution makes a major wave in the crypto pools.
That’s why even after views and reviews institutional money is still a stone throw away from crypto markets. Looks like Citigroup had got a solution now the only thing for one to watch is how many of the institutions will use this route and how many will wait for a Bitcoin ETF.
Will the Digital Asset Receipt open doors to institutional money or the world will wait for the Bitcoin? Do let me know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.