The Depository Trust and Clearing Corporation (DTCC) has announced changes to collateral allocation for exchange-traded funds (ETFs) with exposure to Bitcoin and cryptocurrencies. Effective April 30, 2024, the DTCC will no longer allocate collateral to ETFs linked to Bitcoin or cryptocurrencies. This decision will impact how these ETFs are treated in terms of financial stability and credit assessment.
The DTCC, a financial services company providing clearing and settlement services, stated that financial entities using their services will no longer be able to use Bitcoin-linked ETFs as collateral for credit or similar financing activities. This change is expected to affect the treatment of these ETFs in terms of financial stability and credit assessment. It may also impact position values in the collateral monitor during the DTCC’s annual line-of-credit facility renewal.
While the DTCC’s decision restricts the use of cryptocurrency-linked ETFs as collateral within its system, individual brokerage firms may still allow their use based on their risk management strategies. This decision does not necessarily mean a complete halt to the use of cryptocurrency ETFs as collateral or for lending in brokerage operations.
The market impact of these changes remains to be seen. The introduction of spot Bitcoin ETFs in the US has sparked institutional interest in cryptocurrencies. However, there has been a recent slowdown in net inflows to these ETFs, with some issuers reporting significant outflows. The DTCC’s decision may have implications for the market and brokerage activities surrounding cryptocurrency-linked ETFs.