DTCC withdraws collateral, loan support for crypto ETFs

Financial services firm Depository Trust and Clearing Corporation (DTCC) has announced it will not allocate any collateral or offer loans for ETFs with exposure to Bitcoin or other cryptocurrencies.

As of April 30, during its annual line-of-credit facility renewal, the DTCC will adjust the collateral values for specific securities, potentially impacting their position values in the collateral monitor.

The statement released on April 26 specified that ETFs and similar investment vehicles with Bitcoin or other cryptocurrencies as underlying assets would see their collateral value reduced to zero.

However, crypto enthusiast K.O. Kryptowaluty, in a post on X, noted that the change pertains only 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 that allows the borrower to withdraw funds up to a predetermined credit limit.

The borrower can use these funds as needed and normally pays interest only on the amount borrowed. 

According to Kryptowaluty, the use of cryptocurrency ETFs for lending and as collateral in brokerage activities would likely continue unaffected, dependent on the risk tolerance of individual brokers.

While the DTCC has expressed opposition to cryptocurrency ETFs, other established players have not. Goldman Sachs clients have begun to re-enter the cryptocurrency market in 2024, fueled by fresh enthusiasm following the launch of spot Bitcoin ETFs. 

Since their introduction, these ETFs have attracted substantial institutional interest, amassing over $12.5 billion in assets under management within three months.

In February, the ten Bitcoin ETFs approved in the U.S. on Jan. 11 accounted for an estimated 75% of new Bitcoin investments. 

Despite this surge, recent weeks have seen a decline in inflows. Farside Investors reported a net outflow of $218 million from spot Bitcoin ETFs on April 25, following a $120 million outflow the previous day.

Meanwhile, on April 25, the U.S. Securities and Exchange Commission (SEC) once again delayed its decision on applications for spot Bitcoin ETF options. The regulatory body is extending the deadline and calling for public comments within the next 21 days and rebuttals in 35 days.

The agency has questioned whether options on spot Bitcoin ETFs should follow 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.

In addition, the SEC has deferred decisions on Grayscale and Bitwise’s applications to introduce Bitcoin options ETFs, setting the next review date for May 29.