Cryptocurrencies and the technology behind them, blockchain technology, provide new opportunities for companies across the world to better serve their customers. In particular, companies within the financial services industry are looking to utilize cryptocurrencies to facilitate their services in a whole new light. For years, financial industries across the spectrum have been researching how they can deploy these new currencies within their walls. Recently, CitiBank made a big step forward in this effort.
As of this week, CitiBank, the consumer division of Citigroup, announced that they will be offering crypto custody solutions to their institutional investors in the future. Citigroup announced that they will be offering a product called the Digital Asset Receipt (DAR) so that their institutional investors can put their money in cryptocurrencies in a fully regulated and insured environment. The product will work just like an exchange-traded fund (ETF), meaning that investors do not directly have to purchase a cryptocurrency stock or the cryptocurrency itself, but will instead put their money in the ETF which holds foreign stocks and is traded throughout the day.
The first cryptocurrency which Citibank is approaching with the DARs is bitcoin. More specifically, the DARs would work as follows. First, the bank would issue the DARs to their clients. Clients would then, if interested, purchase the DAR for the cryptocurrency of their choosing, in this case, bitcoin. The purchase would be equipped with insurance, protection, transaction monitoring, and all the other tools that are needed for the financial regulators. Then, clients would essentially be holding bitcoin, but again, it would have all the regulation and insurance that the cryptocurrency itself doesn’t have.
Frank Chaparro, a journalist at Business Insider, see the DARs as a tremendous opportunity. He said,
“The bank will alert the Depository Trust and Clearing Corp, a Wall Street middleman that provides clearing and settlement services, once it’s issued the receipt, one of the people said.”
Citigroup is one of many institutions getting into DARs in recent month. It now joins Coinbase and Goldman Sachs and is poised to affect the market.
One of the largest effects that these new digital assets could have on the market revolves around diversification. Once the first DAR hits the market, it is likely that many pension funds, hedge funds, and other mutual funds with a high-risk appetite will invest in cryptocurrencies. Thus, these new publicly traded assets serve as a huge stepping stone to increase the flow of capital into the market. With cryptocurrencies at a yearly low, the DARs pose the potential of bringing cryptocurrencies out of the slump.
While many of these companies have gotten into digital assets and publicly trading them, they are still approaching the situation with caution. The two financial institutions, Goldman Sachs and Citigroup, have stressed that they are taking caution and entering the cryptocurrency market slowly. They are still very early in the process of developing products, such as DARs. Hence, experts believe that the first DARs or other publicly traded instruments around cryptocurrencies, will not be available until early 2019.