DTCC Declares No Collateral Value for Bitcoin-Linked ETFs, Impacting Loan Extensions

The Depository Trust and Clearing Corporation (DTCC) has announced that it will not assign any collateral value to exchange-traded funds (ETFs) with exposure to Bitcoin or cryptocurrencies. Additionally, the DTCC, a prominent financial services company specializing in clearing and settlement services, will not extend loans against these assets, according to a Friday announcement. The decision will take effect from April 30.The DTCC’s declaration implies that ETFs and similar investment instruments with Bitcoin or other cryptocurrencies as underlying assets will experience a complete removal of their collateral value. 

DTCC’s Move to Impact Inter-Entity Settlements

In a post on X, ccryptocurrency enthusiast K.O. Kryptowaluty clarified that this change would primarily impact inter-entity settlements within the line of credit system. Individual brokers, depending on their risk tolerance, may continue using cryptocurrency ETFs for lending and as collateral in brokerage activities without major repercussions.

The DTC system, or Depository Trust Company, is a key component of the financial infrastructure of the United States, acting as the central securities depository. DTC is part of a larger organization called the Depository Trust & Clearing Corporation (DTCC)

what you write…

— K.O Kryptowaluty (@KO_Kryptowaluty) April 27, 2024

While the DTCC has taken a firm stance against crypto ETFs, other traditional players have shown a different approach. 

Clients of Goldman Sachs have reentered the cryptocurrency market in 2024, driven by renewed interest following the approval of spot Bitcoin ETFs.

The introduction of spot Bitcoin ETFs in the United States has sparked increased institutional interest in this investment product. 

Within just three months of their launch, all U.S.-based Bitcoin ETFs have accumulated over $12.5 billion in assets under management. 

In February, an estimated 75% of new Bitcoin investments were attributed to the 10 spot Bitcoin ETFs approved in the U.S. on January 11.

However, the net inflows into these ETFs have recently slowed down, with multiple issuers reporting significant outflows. 

On April 25, spot Bitcoin ETFs in the U.S. experienced a net outflow of $218 million, following a $120 million outflow the previous day, according to data from Farside Investors. 

Grayscale’s GBTC ETF alone witnessed a notable single-day outflow of $82.4197 million, bringing the total net outflows from GBTC to a substantial $17.185 billion.

Morgan Stanley to Allow Brokers Recommend Spot Bitcoin ETFs

As reported, Morgan Stanley, one of the leading financial institutions, is exploring the possibility of expanding its sales of Bitcoin ETFs by allowing its approximately 15,000 brokers to actively recommend these products to customers. Currently, Morgan Stanley offers Bitcoin ETFs on an unsolicited basis, meaning that customers must approach their advisors independently to express interest in investing. By enabling advisors to actively recommend these products, the firm could potentially broaden its customer base, although it would also expose itself to additional liability.Some financial institutions, like Raymond James Financial and Vanguard, have chosen not to offer cryptocurrency products, citing concerns about their suitability for long-term portfolios.LPL Financial, the largest independent brokerage with over 22,000 brokers, announced plans in February to evaluate which Bitcoin funds it could offer to customers. Meanwhile, Hong Kong is gearing up to launch its much-anticipated spot Bitcoin and Ethereum ETFs by the end of April. The Hong Kong Securities and Futures Commission (SFC) recently granted approval to several fund managers to offer these ETFs in a bid to establish itself as a hub for digital assets by introducing a range of cryptocurrency ETFs.