DTCC Announces No Collateral Value for Bitcoin-Linked ETFs, Affecting Loan Extensions
The Depository Trust and Clearing Corporation (DTCC) has made a statement declaring that it will not assign any collateral value to exchange-traded funds (ETFs) that have exposure to Bitcoin or other cryptocurrencies. Furthermore, the DTCC, a well-known financial services company specializing in clearing and settlement services, will not provide loans against these assets, as stated in a recent announcement. This decision will come into effect on April 30.
The DTCC’s declaration means that ETFs and similar investment instruments with Bitcoin or other cryptocurrencies as underlying assets will lose all of their collateral value. This move by the DTCC will primarily impact inter-entity settlements within the line of credit system, according to cryptocurrency enthusiast K.O. Kryptowaluty.
Individual brokers, depending on their risk tolerance, may still use cryptocurrency ETFs for lending and as collateral in brokerage activities without significant consequences.
While the DTCC has taken a firm stance against crypto ETFs, other traditional players in the financial industry have adopted 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 attracted increased institutional interest in this investment product. In just three months since their launch, all U.S.-based Bitcoin ETFs have amassed over $12.5 billion in assets under management.
In February, approximately 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, U.S. spot Bitcoin ETFs 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 saw a significant single-day outflow of $82.4197 million, bringing the total net outflows from GBTC to a substantial $17.185 billion.
Morgan Stanley is reportedly considering 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 independently approach their advisors to express interest in investing. By enabling advisors to actively recommend these products, the firm may be able to expand its customer base, although it would also expose itself to additional liability.
Some financial institutions, such as Raymond James Financial and Vanguard, have chosen not to offer cryptocurrency products due to 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 preparing to launch its highly 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, aiming to establish itself as a hub for digital assets by introducing a range of cryptocurrency ETFs.
