DTCC: No Collateral for Bitcoin-Linked ETFs

The Depository Trust and Clearing Corporation (DTCC), a major financial services company, has made an announcement stating that it will not provide any collateral or extend loans to exchange-traded funds (ETFs) with exposure to Bitcoin or other cryptocurrencies. This decision will go into effect on April 30, 2024, and will result in a 100% reduction in the collateral value assigned to these types of investment instruments. It’s important to note that this change only applies to inter-entity settlements within the Line of Credit (LOC) system.

DTCC’s decision does not reflect the stance of all traditional players in the financial industry. For example, Goldman Sachs’ clients have been reentering the crypto market this year, encouraged by the approval of spot Bitcoin exchange-traded funds. These ETFs have attracted significant institutional interest, accumulating over $12.5 billion in assets under management within three months of their launch.

Despite the recent success of Bitcoin ETFs, there has been a noticeable slowdown in overall inflows. In fact, in the past few days, multiple ETF issuers have reported significant outflows. For instance, on April 25, US spot Bitcoin ETFs experienced a net outflow of $218 million, following a $120 million outflow the day before. Grayscale’s GBTC ETF also saw a single-day outflow of $82.4197 million, resulting in a total historical net outflow for GBTC of $17.185 billion.

It’s important to clarify that DTCC’s decision regarding collateral values and loans only impacts inter-entity settlements within the Line of Credit system, and this does not affect the use of cryptocurrency ETFs for lending or collateral in brokerage activities. It will ultimately depend on individual brokers’ risk tolerance whether they continue to utilize these investment instruments.

Despite the mixed responses from various financial institutions and players, the introduction of spot Bitcoin ETFs has revitalized interest in the crypto market, especially among institutional investors. These ETFs provide a regulated and secure way for investors to gain exposure to Bitcoin and other cryptocurrencies, which has contributed to the significant influx of assets under management in a relatively short period.

While DTCC’s refusal to allocate collateral to crypto ETFs may have implications for these specific investment instruments within their system, it is not a definitive statement on the overall viability and acceptance of cryptocurrencies in the financial industry. It highlights the varying attitudes and approaches toward this emerging asset class among different players in the market.