DTCC Declines Collateral for Crypto-Linked ETFs, Amid Broader Market Shifts

In a significant policy shift, the Depository Trust & Clearing Corporation (DTCC), a key player in financial services providing essential clearing and settlement services, has declared that it will not assign any collateral value to exchange-traded funds (ETFs) with exposure to Bitcoin or other cryptocurrencies. This decision, effective April 30, 2024, will also prevent the extension of loans against such financial instruments.

The announcement comes as part of the DTCC’s annual review of its line-of-credit facilities, where it has decided to recalibrate the collateral values assigned to certain securities. This recalibration will see cryptocurrencies entirely excluded from collateral consideration, marking a 100% reduction in their collateral value. This move could reshape the valuation dynamics within the collateral monitoring systems.

However, K.O. Kryptowaluty, a noted cryptocurrency enthusiast, provided clarification on the implications of this change. According to Kryptowaluty’s statement on social media, the restriction applies solely to inter-entity settlements within the DTCC’s credit line system. Cryptocurrency ETFs will still maintain their utility as collateral in brokerage activities and lending, contingent on the risk assessments of individual brokers.

This decision by the DTCC starkly contrasts the strategies of other major financial institutions. For instance, Goldman Sachs has witnessed a reinvigoration in client interest towards cryptocurrencies, particularly following the U.S. approval of spot Bitcoin ETFs earlier in the year. These ETFs have rapidly garnered significant institutional attention, accumulating over $12.5 billion in assets under management within just three months of their introduction.

The initial surge in interest for these spot Bitcoin ETFs was considerable, with an estimated 75% of all new Bitcoin investments in February attributed to these funds. Nonetheless, recent trends indicate a slowdown, with significant net outflows observed. Farside Investors reported a net outflow of $218 million from these ETFs on April 25 alone, preceded by a $120 million outflow the day before. Grayscale’s GBTC ETF also experienced a substantial single-day outflow of $82.4197 million, contributing to a total net outflow of $17.185 billion.

This dichotomy between the DTCC’s conservative stance on cryptocurrency collateral and the enthusiastic engagement by other financial entities highlights the evolving narrative and the varied approaches within the financial sector regarding digital assets.

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