Depository Trust and Clearing Corporation (DTCC), a financial services firm, recently made an announcement stating that it will no longer provide collateral or loans for exchange-traded funds (ETFs) that have exposure to Bitcoin or other cryptocurrencies. The decision to adjust collateral values for specific securities will affect their position values in the collateral monitor during the annual line-of-credit facility renewal, which is set to take place on April 30.
According to the statement released on April 26, the collateral value for ETFs and similar investment vehicles with underlying assets of Bitcoin or other cryptocurrencies will be reduced to zero. However, it is important to note that this change only applies to inter-entity settlements within the line of credit system, as noted by crypto enthusiast K.O. Kryptowaluty in a post on X.
A line of credit refers to a loan agreement between a financial institution and an individual or company, allowing the borrower to withdraw funds up to a predetermined credit limit. The borrower can utilize these funds as needed and typically pays interest only on the amount borrowed. Kryptowaluty believes that the use of cryptocurrency ETFs for lending and as collateral in brokerage activities will likely continue unaffected, depending on the risk tolerance of individual brokers.
While the DTCC has expressed its opposition to cryptocurrency ETFs, other established players, such as Goldman Sachs, have not. In fact, Goldman Sachs clients have started re-entering the cryptocurrency market in 2024, driven by renewed enthusiasm following the launch of spot Bitcoin ETFs. These ETFs have gained significant institutional interest since their introduction, accumulating over $12.5 billion in assets under management within just three months.
In February, the ten Bitcoin ETFs approved in the U.S. on January 11 accounted for approximately 75% of new Bitcoin investments. However, recent weeks have witnessed a decline in inflows. On April 25, Farside Investors reported a net outflow of $218 million from spot Bitcoin ETFs, following a $120 million outflow the previous day.
Additionally, on April 25, the U.S. Securities and Exchange Commission (SEC) once again extended its decision on applications for spot Bitcoin ETF options. The regulatory body has extended the deadline and called for public comments within the next 21 days and rebuttals within 35 days. The SEC has raised concerns about whether options on spot Bitcoin ETFs should be subject to the same rules as stocks.
Various exchanges, including Cboe Exchange, Inc., BOX Exchange LLC, MIAX International Securities Exchange LLC, Nasdaq ISE, LLC, and NYSE American LLC, have applied to offer options trading on these ETFs. Furthermore, the SEC has postponed decisions on Grayscale and Bitwise’s applications to introduce Bitcoin options ETFs, with the next review date set for May 29.