DTCC Opts Out Bitcoin ETFs From Receiving Any Collateral

• The DTCC has decided against assigning collateral to ETFs with crypto exposure.
• The announcement sparked panic in the crypto sphere, heightening worries about liquidity.
• However, the implications of DTCC’s new rule extend beyond initial concerns.

Bitcoin ETFs have been on a roll since they were introduced earlier this year , swiftly outpacing SIlver ETFs in its first quarter and accumulating over $50 billion in assets under management. The investment vehicle currently stands as one of the top-performing assets in the world, leading to the crypto industry drawing increasing attention from investors. However, despite its burgeoning success, it faces resistance from traditional financial players like the DTCC, reflecting lingering skepticism toward the crypto space.

DTCC Offers No Loans to Investment Vehicles With Exposure to Crypto

The Depository Trust and Clearing Corporation (DTCC) — the leading provider of post-trade clearing and settlement services in the financial markets — shared that it will not be allocating any collateral to ETFs with exposure to Bitcoin or cryptocurrencies and will not extend loans against them. 

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Effective April 30, 2023, the DTCC will implement changes to collateral values for specific securities during its annual line-of-credit facility renewal, potentially impacting position values in the collateral monitor. 

Following the change, the DTCC will not assign any collateral value to ETFs and similar investment vehicles with Bitcoin or other cryptocurrencies as underlying assets, resulting in a 100% reduction in their collateral value.

How Will The DTCC’s New Rule Affect the Crypto Industry? 

There is widespread panic surrounding the DTCC’s ruling out investment vehicles that are exposed to crypto from receiving any collateral. 

However, the new rule will only affect inter-entity settlements in the line of credit system, according to crypto enthusiast K.O. Kryptowaluty . For those unfamiliar, a line of credit is a borrowing arrangement allowing an institution 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, the use of cryptocurrency ETFs for lending and as collateral in brokerage operations will remain unaffected, contingent upon individual brokers’ risk tolerance levels. 

On the Flipside

• Max Minton, head of digital assets for Goldman Asia Pacific, said that many of his firm’s largest clients had recently become active or were “exploring getting active” in the crypto sector.
• Net inflows into Bitcoin ETFs have recently slowed down, given the rising geopolitical tensions in the Middle East.

Why This Matters

The DTCC’s decision to exclude investment vehicles linked to Bitcoin or other cryptocurrencies could have implications for investors, potentially leading to reduced liquidity and increased risk. However, it could also act as a deterrent for larger entities from taking on large lines of credit against their çrypto assets and potentially manipulating the market with their disproportionately large positions.

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