Bypassing the SEC to launch Bitcoin "securities"? Understand what BTC depositary receipts are in one article

Original Title: "Citi Alumni-Founded Startup to Offer Bitcoin Securities That Don't Need Green Light From SEC"
Original Author: Jamie Crawley, Coindesk
Original Translation: Jordan, PANews

As speculation about the imminent approval or rejection of a spot Bitcoin ETF reaches a fever pitch, a group of former Citigroup executives is attempting to carve out an alternative path aimed at providing investors with more options.

On the evening of January 4, a company named "Receipts Depositary Corporation (RDC)" emerged, founded by three co-founders Ankit Mehta, Bryant Kim, and Ishaan Narain, all of whom previously worked in Citigroup's Depositary Receipt team and are well-versed in the financial framework of depositary receipts, thus garnering support from institutions like Franklin Templeton, BTIG, and Broadhaven Ventures.

What is an American Depositary Receipt? What is a Bitcoin Depositary Receipt?

According to RDC, the company will offer Bitcoin Depositary Receipts (BDRs) similar to American Depositary Receipts (ADRs), and they do not require approval from the U.S. Securities and Exchange Commission.

So the first question arises, what is an American Depositary Receipt?

A Depositary Receipt (DR) is a security issued by a depositary bank that represents ownership of an underlying asset, helping investors convert, hold, and transfer the underlying assets, such as foreign equities or bonds. According to U.S. securities laws, companies listed in the U.S. must be registered in the U.S. American Depositary Receipts are transferable certificates issued by U.S. commercial banks to facilitate the trading of foreign securities in the U.S., typically representing publicly traded shares and bonds of non-U.S. companies. American Depositary Receipts are bought and sold in the U.S. market, with trading procedures similar to those of ordinary U.S. stocks, issued by U.S. banks, each representing a number of shares of a foreign company held by a foreign custodian, and can be freely traded on U.S. stock exchanges or over-the-counter markets, facilitating non-U.S. companies' entry into the U.S. securities market.

Having understood the concept of American Depositary Receipts, let's look at Bitcoin Depositary Receipts.

Bitcoin Depositary Receipts essentially serve as an investment tool for Bitcoin, fully interchangeable with the underlying Bitcoin held by designated custodians. The Bitcoin Depositary Receipts launched by RDC represent direct ownership of the underlying Bitcoin, rather than shares of a fund. In simple terms, Bitcoin Depositary Receipts allow U.S. investors to invest in Bitcoin as if they were investing in overseas companies, without conflicting with the Securities Act.

Bitcoin Depositary Receipts follow the same structure as American Depositary Receipts, operating within the U.S. regulated market infrastructure, and are cleared by the Depository Trust Company (DTC). Currently, RDC's operational infrastructure includes Broadridge Corporate Issuer Solutions and Anchorage Digital Bank National Association, with the former acting as the transfer agent and the latter responsible for the custody of the underlying Bitcoin. It is reported that RDC's Bitcoin Depositary Receipts have already obtained a CUSIP number and an International Securities Identification Number (ISIN).

6 Questions to Understand RDC's Bitcoin Depositary Receipts

1. Does RDC, which issues Bitcoin Depositary Receipts, own the custodied Bitcoin?

No, as the custodian, RDC does not own the custodied underlying Bitcoin according to the terms of the Bitcoin Depositary Receipt facility; the custodied Bitcoin belongs to the holders of the Bitcoin Depositary Receipts.

2. Do Bitcoin Depositary Receipts track asset value?

Bitcoin Depositary Receipts are fully interchangeable with the underlying Bitcoin and are designed to track the asset value of the underlying Bitcoin.

3. Can the custodied Bitcoin be lent out under the Bitcoin Depositary Receipts?

No, the custodied Bitcoin cannot be lent out and must fully support every Bitcoin Depositary Receipt in circulation.

4. Can the custodied Bitcoin be claimed by creditors?

No, the custodial structure of Bitcoin Depositary Receipts means that the custodied Bitcoin is isolated from the assets themselves. The underlying Bitcoin is owned by the holders of the Bitcoin Depositary Receipts.

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 custodial platform support?

RDC's mission is to extend the traditional depositary receipt structure to digital and alternative assets. While Bitcoin Depositary Receipts are currently the only product offered, they are actively exploring products for some of the most widely used digital and alternative assets based on a comprehensive due diligence process that considers the needs of institutional investors, the custodians' ability to support these assets, and the views of regulators on the underlying asset Bitcoin.

Summary: What are the advantages of introducing the concept of "Depositary Receipts" to Bitcoin? Depositary Receipts can be cleared and settled through a depositary trust company, allowing investors to trade within their traditional clearing systems. Unlike most other access products, Depositary Receipts provide direct ownership of the underlying asset, with custodians offering high-touch, value-added operational services to Depositary Receipt holders.

More importantly, this model can exempt from the registration requirements of the U.S. Securities Act, meaning that Bitcoin Depositary Receipt custodians can "bypass" the U.S. Securities and Exchange Commission—at least for now. According to RDC, the Bitcoin Depositary Receipts they launched are positioned as a complement to spot Bitcoin ETFs, suggesting that if the spot Bitcoin ETF is not approved, Bitcoin Depositary Receipts may also be a good option.