Amid speculation surrounding the Securities and Exchange Commission’s potential approval of spot bitcoin exchange-traded funds in the United States, Franklin Templeton-backed Receipts Depositary Corporation plans to launch a bitcoin-based security product exempt from SEC registration.

The firm said the depositary receipts are exempt for qualified institutional buyers under the U.S. Securities Act of 1933. It expects to issue the first BTC -2.61% DRs to such investors in the coming weeks. Qualified institutional buyers are financially sophisticated entities, like banks and investment firms, with significant assets — allowing them to trade securities that may not be registered with the SEC. 

RDC, which also has backing from BTIG and Broadhaven Ventures, added that the BTC DRs follow the same construction as American Depositary Receipts, which represent shares of foreign stocks issued by banks. ADRs are traded on U.S. stock exchanges in U.S. dollars, making it easier for American investors to buy and sell shares of foreign companies.

“We are excited to provide qualified institutional buyers with the secure, regulated access to digital assets they have been waiting for via BTC DRs,” RDC co-founder and CEO Ankit Mehta said. “There are many benefits to using depositary receipts, such as their tried and true structure, providing direct ownership of the underlying asset and easy inclusion in institutional products. BTC DRs are universally fungible as QIBs can convert their bitcoin holdings into DRs and vice versa.” 

How BTC DRs work

Broadridge Corporate Issuer Solutions is acting as the SEC-registered transfer agent for RDC, and the federally chartered digital asset bank Anchorage Digital will provide custody in a bankruptcy remote structure — mitigating counterparty credit risk from the issuing depositary. This setup ensures that the DRs are 100% backed by bitcoin held in custody and cannot be lent, re-hypothecated or pledged, the firm said.

The BTC DRs operate within U.S. regulated market infrastructure and are cleared via The Depository Trust Company, enabling qualified investors to own bitcoin using the same technology, workflows and counterparty relationships they use for traditional securities, RDC added.

“The RDC team has some of the strongest talent available in the highly technical world of depositary receipts,” Anchorage Digital president and co-founder Diogo Mónica said. “With the underlying BTC safely stored via institutional-grade custody at Anchorage Digital Bank, we’re excited to help bring BTC to the securities ecosystem.”

While BTC DRs are RDC’s first offering, the company said it was also able to create clearinghouse-eligible securities for other alternative assets.

The spot bitcoin ETF race

The crypto industry has been vying for a spot bitcoin ETF for years, with Franklin Templeton also joining the race in September among a current total of 14 asset managers — including BlackRock, Fidelity, Valkyrie and VanEck — hoping to finally win SEC approval.

Dubbed the Franklin Bitcoin ETF, the fund's assets would consist primarily of bitcoin held in custody by Coinbase Custody Trust Company. If approved, shares will be listed and traded on the Cboe BZX Exchange.