DTCC to Remove Collateral Values from Crypto-Related ETFs Amidst Contrasting Market Trends
Summary:
The Depository Trust and Clearing Corporation (DTCC) plans to stop attributing collateral values to Bitcoin and cryptocurrency-related exchange-traded funds (ETFs) and cease extending loans against them, effective from April 30, 2024. While cryptocurrency investment tools will see a 100% decrease in their collateral value, K.O. Kryptowaluty notes they will continue to be used for lending and collateral in brokerage activities, contingent on each broker's risk tolerance. The news contrasts with the renewed interest in the crypto market by traditional financial institution clients like Goldman Sachs, following the approval of spot Bitcoin ETFs. The Bitcoin ETFs sector, after initial success, has reported slowdowns and significant outflows.
DTCC, a major financial services company, has announced that it won't be assigning any collateral values to exchange-traded funds (ETFs) linked with Bitcoin or any other types of cryptocurrencies. Furthermore, no loans will be issued against them. Effective from April 30, 2024, during the yearly renewal of the line-of-credit facility, the DTCC plans to modify the collateral values for certain securities, which could potentially sway position values within the Collateral Monitor. This means that ETFs and alike investment tools that have Bitcoin or other cryptocurrencies as underlying assets will not be assigned any collateral value, leading to their collateral value diminished by 100%.
However, K.O. Kryptowaluty, a cryptocurrency enthusiast, clarified in a post that this will only apply to inter-entity settlements within the Line of Credit (LOC) system. LOC is a pre-arranged agreement between a financial institution and a borrower that allows the latter to access funds up to a determined limit as per their need, typically paying interest only on the drawn amount. Kryptowaluty further revealed that the use of cryptocurrency ETFs for lending and as collateral in brokerage operations will continue without impact based on each broker's risk tolerance.
Despite DTCC's stance on crypto ETFs, other traditional players are not in agreement. Goldman Sachs' clients have started to re-engage with the crypto market this year, primarily due to the approval of spot Bitcoin exchange-traded funds. This has led to a significant surge of institutional interest in Bitcoin ETFs. All US Bitcoin ETFs have aggregated over $12.5 billion in assets under management (AUM) within three months of their initiation. In February, it was discovered that about 75% of new Bitcoin investments happened due to the 10 spot Bitcoin exchange-traded funds that got approved in the US on January 11.
However, after a successful launch, Bitcoin ETFs have recently noted a decline in their inflows. Over the past few days, multiple ETF issuers have reported considerable outflows in these spot Bitcoin ETFs. As indicated by Farside Investors, US-based spot Bitcoin ETFs saw a net outflow of $218 million on April 25, following a $120 million outflow a day earlier.
Grayscale’s Bitcoin ETF, GBTC, also reported a significant single-day outflow of $82.4197 million. As per Farside Investors' data, GBTC has recorded a hefty net outflow total of $17.185 billion.
Published At
4/27/2024 11:15:50 AM
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