Amidst the continued speculation over the approval of a Bitcoin spot ETF, a company founded by former Citigroup executives plans to bypass the SEC by launching a Bitcoin Depositary Receipt (BDR) that does not require approval.
On January 4, media reported that Receipts Depositary Corporation (RDC), established by former Citigroup executives, announced its intention to issue a security that doesn't require approval from U.S. regulators. Similar to American Depositary Receipts (ADRs) that represent foreign stocks, this will be named BTC DR (Bitcoin Depositary Receipt).
RDC stated in its announcement that it plans to issue the first batch of Bitcoin Depositary Receipts to qualified global institutional investors. Under the Securities Act of 1933, the trading of U.S. Depositary Receipts doesn't need to register with the SEC, allowing investors to acquire Bitcoin securities through U.S. regulated markets and have them cleared through the Depository Trust Co.
Ankit Mehta, RDC's co-founder and CEO and a former executive at Citigroup, in an interview, explained they essentially provide an asset conversion tool:
Hedge funds, family offices, companies, or large institutional investors, all seek to convert their Bitcoin into a security that qualifies for DTC and enjoy direct ownership in the U.S. clearing system.
Mehta believes that, compared to Bitcoin ETFs, depositary receipts offer institutional investors direct ownership of Bitcoin. Meanwhile, directly buying Bitcoin is "not favored by regulatory bodies," and issuing U.S. depositary receipts alleviates this conflict.
Diogo Mónica, co-founder and president of Anchorage Digital, commented that introducing traditional financial market standards, like depositary receipts, into the digital asset ecosystem will be a theme in 2024:
Most traditional institutions want direct exposure to Bitcoin, but due to regulatory issues, some remain hesitant. For these players, using depositary receipts can offer the best of both worlds.
Reports indicate that Citigroup had briefly developed a similar product back in 2018, and RDC's three co-founders were members of Citigroup's team that explored digital asset depositary receipts. Mehta clarified that RDC's issuance is "independent" of Citigroup's previous explorations.
First Bitcoin Spot ETF Might Not Get Approved in January
Wall Street Watch previously mentioned that the first Bitcoin spot ETF in January might be approved, which partly stimulated Bitcoin's significant rise in December last year.
However, a report released by Matrixport's analyst Markus Thielen on January 3 suggests that the U.S. Securities and Exchange Commission (SEC) might reject all Bitcoin spot ETF proposals in January, with final approval likely in the second quarter of 2024. If the SEC rejects the ETF proposals, Bitcoin prices might plummet to between $36,000 and $38,000:
The report said the current ETF applications haven't met a critical prerequisite for SEC approval, and we expect all proposals to be rejected in January.
Since traders started betting on ETF approval in September 2023, over $14 billion has flowed into cryptocurrency-related assets, some of which might be related to the Federal Reserve's pivot, but about $10 billion might be associated with the anticipated ETF approval, Markus Thielen also noted in the report.
The report emphasizes the political landscape within the SEC and suggests that the majority of the voting members being Democrats could impact the decision, casting further doubt on the approval of Bitcoin ETF applications due to SEC Chair Gary Gensler's cautious stance on cryptocurrencies:
With most of the five voting members of the SEC being Democrats, it's unlikely Gensler will accept the implementation of cryptocurrencies in the U.S., and even the possibility of him voting in favor of a Bitcoin spot ETF is slim.
The report advises that if there's no news of SEC approval by Friday, January 5, traders might consider buying put options for January with a $40,000 strike price or directly short Bitcoin through options to hedge their long exposure.
Greeks.Live noted the diminishing likelihood of SEC approving ETFs, leading to a stalemate in the market: the weakness of cryptocurrency stocks and the sell-off of several cryptocurrency-related U.S. stocks further reinforce the market's skepticism.
The report from Matrixport also led to Bitcoin's price falling over 10% within 24 hours, dropping below $41,000 per Bitcoin. Before this, Bitcoin had surpassed the $45,000 mark, reaching a 21-month high. At the time of reporting, Bitcoin has risen 1.17% to $43,343 per Bitcoin.
