Digital assets have expanded into a multi-trillion-dollar industry, but they are still largely isolated from traditional financial systems. Institutional investors are showing a growing interest in acquiring and utilizing digital assets; however, most banks, broker-dealers, and asset management firms rely on infrastructure built for conventional stocks and bonds, which doesn’t accommodate blockchain-based assets. While the introduction of spot crypto ETFs marks a significant milestone toward integration, these products only provide passive involvement with the asset category. For digital assets to realize their full potential, there needs to be a method that connects them with the entire existing capital markets infrastructure in a recognized and regulated format.
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Consider American Depositary Receipts (ADRs). For almost a century, ADRs have acted as a connector for international stocks, bonds, and commodities, allowing U.S. investors to own foreign assets as easily as domestic ones. The inaugural ADR—introduced in 1927—laid the groundwork for a system that now facilitates trillions in global investment. ADRs are effective because they offer liquidity, economic rights, and governance rights governed by U.S. regulations, all while ensuring efficient settlement via the Depository Trust & Clearing Corporation (DTCC). They boost local liquidity and market access, as demonstrated by Chinese firms listing on the London Stock Exchange and U.S. stocks trading in Brazil.
Crypto as the next-generation foreign market
Crypto-focused ADRs will serve a comparable purpose for digital assets. Similar to foreign markets, the crypto realm operates outside the conventional U.S. capital markets, making it challenging for many institutions to participate without specialized infrastructure. ADRs offer a regulated, approachable, and established framework that allows:
- Effortless access – Digital assets can be integrated into funds and held at current banks and brokerage accounts, enabling traditional capital market functionalities.
- Streamlined two-way convertibility – Unlike being restricted to authorized intermediaries, ADRs give asset owners the liberty to convert the underlying crypto and ADRs directly.
- Cost-effectiveness – ADR conversions occur quickly and do not require NAV calculations, with fees never deducted from the sale of the underlying crypto.
- Compatibility with institutional processes – Transactions via DTCC using unique identifiers like CUSIP and ISIN guarantee alignment with existing operational workflows.
Traditional finance seeks crypto
The interest in digital assets among institutions is rapidly increasing, yet many long-standing market players are still reliant on DTCC frameworks and lack direct access to crypto. ADRs cater to these firms by addressing critical regulatory, compliance, and operational challenges:
- Regulatory compliance – ADRs are SEC-regulated securities that feature CUSIPs, ISINs, and tickers, ensuring investor safety.
- Compliance assurance – Only regulated entities (like broker-dealers and banks) are involved in custodial and servicing capacities for ADRs, ensuring strict compliance measures.
- Operational efficiency – Settlements of ADRs follow traditional stock clearing processes, just like any other security.
Unlocking market potential
By linking the $3 trillion crypto market with the $87 trillion securities market through DTCC, ADRs could facilitate institutional acceptance and open new avenues within traditional markets, including the following:
- 24/7 trading – Crypto markets are always operational, while traditional securities have set hours. ADRs enable continuous trading of conventional securities, reducing the risks associated with overnight and weekend volatility. Since the debut of spot bitcoin ETFs in early 2024, BTC has shown 10% fluctuations on two weekends—variances from which institutional investors were unable to fully benefit.
- Yield, lending, and settlement – ADRs could be utilized for margin trading, crypto spot and futures settlement, collateralized lending, and structured products. Their distinctive ability to connect ADR and crypto liquidity makes them an excellent tool for institutionalizing these applications.
- Custody options – Investors have the flexibility to hold their assets either on-chain or within traditional brokerage accounts.
- Inclusion in funds – Given their securities status, ADRs facilitate crypto ownership within ETFs and institutional investment portfolios.
Conclusion: Establishing a foundation for institutional advancement
ADRs transformed global investing by making it easy for U.S. investors to access foreign stocks. There is now a unique chance to enhance this legacy of market accessibility. By providing a regulated, efficient, and recognizable link for institutions to participate in digital assets, ADRs could be crucial in unlocking the next phase of growth for crypto and ultimately bring new institutional capital into the blockchain ecosystem.