Citigroup is reportedly in the process of creating a cryptocurrency investment product that could revolutionary change how the public invests in blockchain assets. Known as a digital asset receipt (DAR) it is aimed at institutional investors, and could significantly simplify the means by which cryptocurrencies are bought and sold. Additionally, this product will add a level of trust and security that many potential investors believe is lacking in the digital asset space.
The DAR is a form of custodial ownership. Investors will purchase the chosen cryptocurrency from Citigroup, but will not possess the coins themselves (not access the private keys). Rather, investors will receive a digital receipt that Citibank will honor for the cryptocurrency’s fiat value. This concept has been used for many years for international investments, usually foreign stocks, that American citizens cannot directly purchase.
This move by Citigroup is one of many from legacy financial institutions seeking to become involved in cryptocurrency investments. Goldman Sachs is also known to be pursuing a similar form of custodial ownership. These companies are certainly aware of the growing demand by their clients to enter the crypto space, and also of the growing competition by exchanges such as Coinbase and Binance. Simply put, cryptocurrencies are a new class of global asset, and financial firms must support them to survive long-term.
Many cryptocurrency advocates have long derided the notion of banks and financial firms becoming involved in digital currency investment and management, as blockchain assets are, by their very design, resistant to centralized control. More specifically, banks and financial managers are simply not needed to purchase cryptocurrencies. In fact, not having access to your own private keys is considered a very bad idea, especially for large holdings.
There is thus no doubt that for custodial ownership to succeed, Citigroup and others will need to create value for their clients that exceeds mere digital currency investment. To this end, custodial ownership could offer insurance against theft as well as proper handling of records. This service could be appealing, as high-value investors would expect mitigation against such losses. In fact, Coinbase has its own similar program with such protection as its primary selling point, the Institutional Coinbase Custody.
Although the issuance of crypto DARs is expected to meet regulatory approval, it is worth noting that the Securities and Exchange Commission (SEC) has yet to rule on them. The agency has been slow to embrace the legitimacy of blockchain assets, having recently rejected similar financial products such as crypto exchange traded funds (ETFs). Nevertheless, regulatory clarification is sorely needed.
The creation of DARs could bring significant capital into the crypto space. if they succeed, the overall market cap of many platforms could grow exponentially. Nevertheless, finding financial products that investors will feel comfortable using is a challenge for banks and financial firms. Some time could pass before the role of these traditional institutions is properly defined for crypto investment and ownership.
Featured Image via Citigroup.