The Depository Trust and Clearing Corporation (DTCC) has made a significant decision regarding collateral allocation for exchange-traded funds (ETFs) with exposure to Bitcoin and cryptocurrencies, effective April 30, 2024. The DTCC announced that it will no longer allocate any collateral to these ETFs, meaning financial entities using DTCC’s services cannot use them as collateral for credit or financing activities.
This change is expected to impact how these ETFs are treated in terms of financial stability and credit assessment. It may affect position values in the collateral monitor during the DTCC’s annual line-of-credit facility renewal. However, the broader market and brokerage activities’ implications remain to be seen.
Despite this decision, individual brokerage firms may still allow the use of cryptocurrency-linked ETFs as collateral or for lending based on their risk management strategies. Thus, the DTCC’s decision does not necessarily halt the use of these ETFs for collateral or lending in brokerage operations entirely.
The market impact of this decision is uncertain, especially considering the increasing institutional interest in cryptocurrencies with the introduction of spot Bitcoin ETFs in the United States. However, recent reports indicate slowed net inflows to these ETFs, with some issuers experiencing significant outflows. The full impact of the DTCC’s decision on the market and brokerage activities surrounding cryptocurrency-linked ETFs remains to be seen.
