DTCC removes its backing for cryptocurrency ETFs, withdrawing collateral and loan support
Depository Trust and Clearing Corporation (DTCC), a financial services firm, has 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. This decision will take effect on April 30, as part of the annual renewal of the company’s line-of-credit facility. It will result in the adjustment of collateral values for certain securities, potentially impacting their position values in the collateral monitor.
According to the statement released on April 26, the collateral value for ETFs and similar investment vehicles with Bitcoin or other cryptocurrencies as underlying assets will be reduced to zero. However, it’s important to note that this change only applies to inter-entity settlements within the line of credit system. A line of credit is 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 typically pays interest only on the amount borrowed and can use the funds as needed.
Despite the DTCC’s opposition to cryptocurrency ETFs, it’s worth mentioning that other established players, such as Goldman Sachs clients, have started re-entering the cryptocurrency market. This renewed interest has been fueled by the launch of spot Bitcoin ETFs and has resulted in substantial institutional investment, with over $12.5 billion in assets under management within three months.
However, recent weeks have seen 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, the U.S. Securities and Exchange Commission (SEC) has once again delayed its decision on applications for spot Bitcoin ETF options. The regulatory body has extended the deadline and is seeking public comments within the next 21 days, with rebuttals due in 35 days. The SEC is questioning whether options on spot Bitcoin ETFs should be subject to the same rules as stocks.
Several 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.
Overall, while the DTCC has taken a stand against cryptocurrency ETFs, the future of these investment vehicles remains uncertain. The market has seen both significant interest and recent outflows, and regulatory decisions are still pending.
