The National Bank of Bahrain (NBB) has launched the Gulf region’s first Bitcoin-linked structured product, developed in collaboration with crypto firm ARP Digital. This innovative investment offering is exclusively available to accredited investors, aiming to provide a unique blend of cryptocurrency exposure and capital protection.

Understanding the Structure of the Product

Structured products often incorporate derivatives tailored to meet investors’ specific needs. In this case, the Bitcoin-linked product promises potential returns from Bitcoin price increases, albeit with a capped amount. Notably, it claims to provide 100% downside protection for investors. Hisham AlKurdi, Group Chief Executive – Markets & Client Solutions at NBB, emphasised the importance of this product, stating, “We are proud to introduce this bespoke structured investment, which blends the appeal of digital asset exposure with the security of capital protection.”

Decoding the 100% Downside Protection

While the promise of 100% downside protection may seem too good to be true, it likely involves a classic options strategy known as a “collar.” This strategy typically requires holding the underlying Bitcoin while buying a put option at the current market price, which allows investors to sell if Bitcoin’s price declines. To fund the put option, investors would sell a call option at a capped return price. The proceeds from the call option can help offset the costs associated with the put option. However, the precise structure of NBB’s product remains undisclosed.

NBB’s Strategic Position in the Market

NBB is listed on the local stock exchange, with significant ownership stakes held by government-linked organisations. The Bahrain Mumtalakat Holding Company and the Social Insurance Organization, which manages government pension funds, own 55% of the bank. ARP Digital, founded by a former Goldman Sachs executive, enhances NBB’s credibility in the evolving world of digital assets, showcasing the bank’s commitment to innovative financial solutions.

This new structured product marks a significant step for the banking sector in the Gulf, reflecting a growing acceptance of cryptocurrencies as viable investment options.