DTCC rules out collateral for Bitcoin-linked ETFs

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The financial services giant DTCC has stated that it will not allocate any collateral to exchange-traded funds (ETFs) with exposure to Bitcoin or cryptocurrencies and will not extend loans against them.

DTCC’s announcement states that effective April 30, 2024, the Depository Trust and Clearing Corporation (DTCC) will implement changes to collateral values for specific securities during its annual line-of-credit facility renewal, potentially affecting position values in the Collateral Monitor.

This notice released on April 26 means that exchange-traded funds and similar investment instruments with Bitcoin or other cryptocurrencies as underlying assets will not be assigned any collateral value, resulting in a 100% reduction in their collateral value.

However, in an X post, cryptocurrency enthusiast K.O. Kryptowaluty clarified that this would only apply to inter-entity settlement within the Line of Credit (LOC) system.

Source: K.O Kryptowaluty

A Line of Credit is a borrowing arrangement between a financial institution and an individual or entity that allows the borrower to draw funds up to a predetermined credit limit. The borrower can access these funds as needed and typically pays interest only on the amount borrowed.

According to Kryptowaluty, using cryptocurrency exchange-traded funds for lending and as collateral in brokerage activities will continue without impact, depending on individual brokers’ risk tolerance.

While DTCC has taken a stand against crypto ETFs, the same is not valid for other traditional players. Goldman Sachs’ clients have begun reentering the crypto market this year, driven by renewed interest following the approval of spot Bitcoin (BTC) exchange-traded funds.

Related: Bitcoin entering most likely 2 weeks for new BTC price dip — Analysis

The introduction of spot Bitcoin ETFs has spurred increasing institutional interest in this investment product. Within three months of their launch, all United States Bitcoin ETFs have accumulated over $12.5 billion in assets under management (AUM).

In February, an estimated 75% of new Bitcoin investments came from the 10 spot Bitcoin exchange-traded funds approved in the United States on Jan. 11.

Following a healthy launch of Bitcoin ETFs, overall inflows have recently slowed down. In the past three days, multiple ETF issuers reported significant outflows in these spot Bitcoin ETFs. As reported by Farside Investors, spot Bitcoin ETFs in the U.S. saw a net outflow of $218 million on April 25, following a $120 million outflow the previous day.

Grayscale’s GBTC ETF saw a notable single-day outflow of $82.4197 million. According to data from Farside investors, the current historical net outflow for GBTC totals a substantial $17.185 billion.

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