DTCC’s update on collateral values for some securities, particularly ETFs with Bitcoin or other cryptocurrencies as assets, stirs concerns in the financial industry.
The financial services firm DTCC has made it clear that it will assign zero collateral to exchange-traded funds (ETFs) with exposure to Bitcoin or cryptocurrencies and will grant no loans against them.
DTCC Dealing Bitcoin ETFs a Significant Blow?
As part of renewing its annual line-of-credit facility, the Depository Trust & Clearing Corporation (DTCC) will implement modifications to the collateral values of specific securities beginning on April 30, 2024.
However, these alterations potentially affect position values within the Collateral Monitor.
DTCC announced that exchange-traded funds (ETFs) and comparable investment instruments that hold Bitcoin or other cryptocurrencies as underlying assets will no longer be required to assign collateral value, effective immediately.
As a result, these securities will be subject to a 100% haircut.
Meanwhile, K.O. Kryptowaluty, a well-known cryptocurrency enthusiast, clarified that this restriction applies solely to inter-entity settlements within the Line of Credit (LOC) system.
A line of credit functions as a financial instrument that grants market participants the ability to obtain borrowed funds to finance short-term transactions or meet liquidity needs.
The application of cryptocurrency Exchange-Traded Funds (ETFs) for collateral in brokerage activities and lending purposes is unaffected; however, it is contingent on the risk tolerance of individual brokers.
Moreover, the introduction of spot Bitcoin ETFs has increased institutional interest in this investment vehicle.
Assets under management (AUM) for all U.S. Bitcoin ETFs have accumulated more than $12.5 billion in the first three months after their introduction.
BTC ETF Inflows Decline
Following an initial surge in support for the introduction of Bitcoin ETFs, the total inflows have slowed in recent weeks.
Multiple issuers of these spot Bitcoin ETFs have documented significant outflows over the past three days.
According to the most recent data released on April 26, Bitcoin spot ETFs experienced a cumulative net outflow of $83.6147 million.
Grayscale’s ETF, GBTC, saw a massive single-day outflow of $82.4197 million.
At the moment, data provided by Farside investors indicates that the historical net outflow of GBTC amounts to a significant $17.185 billion.
Although DTCC has opposed crypto ETFs, other traditional actors have yet to adopt the same stance. The BNY Melon, a bank with a century of experience, recently declared its intention to invest in Bitcoin ETFs.
The Form 13F, which BNY Mellon recently submitted to the Securities and Exchange Commission, has attracted considerable global interest from the crypto community.
The bank’s investments in BlackRock and Grayscale Bitcoin ETFs are not just local but also serve as a global indicator of cryptocurrencies’ growing recognition and integration into the traditional financial industry.
