After a string of bad news around financial products and institutional support for cryptocurrencies, there’s finally some good news: a new financial product reportedly being designed by Citigroup Inc. that allows people to invest in cryptocurrencies without owning them.

According to Business Insider but not yet officially announced, Citi has developed a “digital asset receipt” that operates in a similar way to an American depositary receipt.

An ADR is a negotiable certificate of title to a number of shares in a non-U.S. company that are deposited in an overseas bank, giving investors a way to invest in an overseas company without directly holding shares. A DAR would work in the same way in that the investors would be able to invest in a DAR that holds, via a custodian, a given amount of cryptocurrency.

In terms of trading, DAR investments would be tracked by the Depository Trust & Clearing Corp., the Wall Street clearing and settlement services firm, adding what the report claims is an “important layer of legitimacy and gives investors a way to track the investment within a system that they’re already familiar with.”

The key here is opening up a way for institutional investors and hedge funds to invest in cryptocurrencies in a regulated way using an investment method they are already familiar with.

The idea would be a positive step forward for the legitimacy of cryptocurrencies as an asset class, but it still has to gain regulatory approval and history hasn’t always been kind to other companies that have attempted to bring to market products linked to cryptocurrencies.

Less than a month ago, the U.S. Securities and Exchange Commission rejected nine applications for exchange-traded funds after previously having rejected applications from SolidX Bitcoin ETF, the Winklevoss Bitcoin Trust ETF and the Grayscale Bitcoin Investment Trust.

Although different in the form, the ETFs were, like Citi’s DAR, aimed at the same markets and investors. The SEC has constantly argued when rejecting applications that bitcoin is an asset traded in an unregulated way and therefore open to market manipulation and fraud. That remains true with the DAR, but likewise the ADR on which it is based holds shares in foreign markets that may not meet SEC requirements either even though they’re legal.

Since Citibank has not commented on the report, it’s not clear if and when it may be looking to proceed with the DAR. But when it does, the regulatory process will be watched with interest.

Photo: milst1/Flickr