As speculation reaches fever pitch over the imminent approval or rejection of a spot bitcoin ETF, a group of former Citigroup Inc. executives are trying an alternative approach aimed at giving investors more options.
On the evening of January 4, a company called "Receipts Depositary Corporation (RDC)" surfaced. The company's three co-founders, Ankit Mehta, Bryant Kim and Ishaan Narain, all worked in Citi's depositary receipt team and are very familiar with the financial framework of depositary receipts. As a result, they have won the support of institutions such as Franklin Templeton, BTIG and Broadhaven Ventures.
What are American Depositary Receipts? What are Bitcoin Depositary Receipts?
According to RDC, the company will offer Bitcoin depositary receipts similar to American Depositary Receipts (ARD) and will not require approval from the U.S. Securities and Exchange Commission.
So the first question is, what are American Depositary Receipts?
Depository Receipts (DRs) are securities issued by a depositary that represent ownership of underlying assets, and help investors convert, hold and transfer underlying assets, such as foreign equity or bonds. According to the relevant securities laws of the United States, companies listed in the United States must be registered in the United States. American depositary receipts are a type of transferable certificate issued by U.S. commercial banks to assist in the trading of foreign securities in the United States, and usually represent publicly tradable stocks and bonds of non-U.S. companies. American depositary receipts are bought and sold in the U.S. market, and the trading procedures are the same as those for ordinary U.S. stocks. They are issued by U.S. banks, and each contains a number of shares of a company outside the United States that are entrusted to a foreign custodian. They can be freely traded on the U.S. stock exchange market or over-the-counter market, making it easier for non-U.S. companies to enter the U.S. securities market.
After understanding the concept of American Depositary Receipts, let’s take a look at Bitcoin Depositary Receipts.
Bitcoin depositary receipts are essentially a Bitcoin investment vehicle that is fully interchangeable with the underlying Bitcoin held by a designated custodian. The Bitcoin depositary receipts launched by RDC this time represent direct ownership of the underlying Bitcoin, rather than shares in the fund. In simple terms, Bitcoin depositary receipts allow U.S. investors to invest in Bitcoin like investing in overseas companies, without conflicting with (securities laws).
Bitcoin depositary receipts follow the same structure as American depositary receipts. Like American depositary receipts, Bitcoin depositary receipts also operate within the U.S. regulated market infrastructure and are cleared by the Depository Trust Company (DTC). Currently, RDC's operating infrastructure includes: Broadridge Corporate Issuer Solutions and Anchorage Digital Bank National Association. The former will act as a transfer agent and the latter will be responsible for the underlying Bitcoin custody. It is reported that RDC's Bitcoin depositary receipts have obtained the U.S. Securities CUSIP number (CUSIP) number and the International Securities Identification Number (ISIN).
6 Questions to Learn More About RDC Bitcoin Depository Receipts
1. Does the RDC that issues Bitcoin Depositary Receipts own the Bitcoin in custody?
No, as custodian, under the terms of the BDR facility, RDC does not own the underlying Bitcoins held in custody, which are owned by the BDR holders.
2. Do Bitcoin Depositary Receipts track the value of the asset?
Bitcoin depositary receipts are fully fungible with the underlying bitcoins and are designed to track the asset value of the underlying bitcoins.
3. Can BTC be loaned out under a managed Bitcoin Depository Receipt?
No, the Bitcoin held in escrow cannot be loaned out and must be 100% backed by every Bitcoin Depository Receipt in circulation.
4. Are the escrowed Bitcoins available for creditors to claim?
No, the custody structure of Bitcoin Depository Receipts means that the Bitcoin held in custody is segregated from the asset itself. The underlying Bitcoin is owned by the Bitcoin Depository Receipt holder.
5. Who can issue and cancel Bitcoin depositary receipts?
Qualified Institutional Buyers (QIBs) can issue and cancel Bitcoin Depositary Receipts.
6. What other assets does RDC’s hosting platform support?
RDC’s mission is to extend the traditional depositary receipt structure to digital and alternative assets, and while Bitcoin Depositary Receipts are the only product currently offered, products are being actively explored for some of the most widely used digital and alternative assets based on a comprehensive due diligence process that takes into account the needs of institutional investors, the ability of custodians to support these assets and the needs of the majority, as well as regulators’ views on the underlying asset, Bitcoin.
Summary: What are the advantages of introducing the concept of "depository receipts" into Bitcoin?
Depositary receipts can be cleared and settled through the Depository Trust Company, enabling investors to trade in its traditional clearing system. Unlike most other access products, depositary receipts provide direct ownership of the underlying assets, and the custodian provides high-touch, value-added operational services to depositary receipt holders.
More importantly, this model is exempt from the registration requirements of the U.S. (Securities Act), which means that the Bitcoin Depository Receipt custodian can "bypass" the U.S. Securities and Exchange Commission - at least for now. According to RDC, the Bitcoin Depository Receipts they launched are positioned as a supplement to the spot Bitcoin ETF. From this perspective, in case the spot Bitcoin ETF is not approved, Bitcoin Depository Receipts may also be a good choice.
