Citigroup has created what it's calling a digital asset receipt, thought to be the most direct way to invest in cryptocurrencies without owning them, according to people with knowledge of the project.

The DAR works much like an American depositary receipt, which gives US investors the ability to invest in foreign stocks that aren't traded on US exchanges.

The structure would place cryptocurrencies within existing regulatory regimes and give big Wall Street investors a less risky way of investing in the fledgling asset class.

Citigroup may have cracked the cryptocurrency code.

The New York-based bank has come up with perhaps the most direct way to invest in cryptocurrencies without actually owning them, according to people with knowledge of the plans. The structure would place cryptocurrencies within existing regulatory regimes and give big Wall Street investors like asset managers and hedge funds a less risky way of investing in the fledgling asset class.

Citi has developed an instrument it is calling a digital asset receipt. It works much like an American depositary receipt, which has been around for decades to give US investors a way to own foreign stocks that don't otherwise trade on US exchanges. The foreign stock is held by a bank, which then issues the depositary receipt.

In this case, the cryptocurrency would be held by a custodian, with the so-called DAR issued by Citigroup, the people said. The bank would alert the Depository Trust & Clearing Corp., a Wall Street middleman that provides clearing and settlement services, that it issued a receipt, one of the people said. That lends an important layer of legitimacy and gives investors a way to track the investment within a system that they're already familiar with, the person added.

The project is a collaboration between the bank's capital markets origination team and the depositary receipts services team, the people said.

It's unclear what stage of development Citi is in with the project and when it might launch, but the bank has begun reaching out to potential partners. A Citigroup spokeswoman declined to comment on the bank's plans.

Citigroup is one of the largest issuers of ADRs in the world. The bank began issuing depository receipts in 1928 and has won numerous awards for its offering, according to its website.

Wall Street has trod carefully with the burgeoning cryptocurrency market, which is vulnerable to wild price swings, repeated hacks of exchanges and wallets, and a stigma that it enables criminal behavior.

As a result, Citi has held back from earlier efforts to participate in cryptocurrency markets. Unlike firms like Morgan Stanley and Goldman Sachs, Citi did not immediately clear bitcoin futures trades for its clients, and it has kept a lower profile than some of its peers. It also barred clients from making cryptocurrency-related purchases with its credit cards.

But it has been hiring in the sector. The bank was seeking a vice president and senior vice president to explore risks associated with money laundering in bitcoin, cryptocurrency, and other nascent payment technologies, according to LinkedIn job ads posted earlier this year. Bitcoin has often been associated with activities such as money laundering.