The Depository Trust and Clearing Corporation (DTCC) recently made a major decision regarding the allocation of collateral for exchange-traded funds (ETFs) with exposure to Bitcoin and cryptocurrencies. This decision, which will take effect on April 30, 2024, will impact the treatment of these ETFs in terms of financial stability and credit assessment.
Changes in the allocation of collateral
The DTCC, a financial services company that provides clearing and settlement services for the financial markets, has announced that it will no longer allocate collateral to ETFs with exposure to Bitcoin or cryptocurrencies. [1]. This means that financial entities using the DTCC’s clearing and settlement services cannot use these ETFs as collateral when seeking credit or conducting similar financing activities through the DTCC’s system.
Impact on financial stability and credit rating
The change in collateral allocation for Bitcoin-linked ETFs is expected to impact how these ETFs are treated in terms of financial stability and credit rating. [1]. Cointelegraph reported that this decision may impact position values in the collateral monitor during the annual extension of the DTCC’s credit line [1]. It remains to be seen what impact this change will have on the wider market and brokerage business.
Continued use of ETFs as collateral
While the DTCC’s decision limits the use of cryptocurrency-linked ETFs as collateral within the credit line system, it is important to note that individual brokerage firms may still allow the use of these ETFs as collateral or for credit purposes based on their risk management strategies . and tolerance [1]. The DTCC’s decision does not necessarily mean a complete halt to the use of cryptocurrency ETFs as collateral or for lending in brokerage operations.
Market impact
The introduction of spot Bitcoin ETFs in the United States has led to increasing institutional interest in cryptocurrencies. However, net inflows into these ETFs have slowed recently, with several ETF issuers reporting significant outflows [1]. It remains to be seen how the DTCC’s decision will impact market and brokerage activity surrounding cryptocurrency-linked ETFs.
Image source: Shutterstock
. . .
Labels