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DTCC to Cease Collateral and Loan Support for Crypto ETFs

In a significant move impacting the cryptocurrency investment landscape, the Depository Trust & Clearing Corporation (DTCC) has announced its decision to halt the allocation of collateral and offering of loans for exchange-traded funds (ETFs) with exposure to Bitcoin and other cryptocurrencies.

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

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

However, it’s worth noting that this change pertains solely to inter-entity settlements within the line of credit system, as highlighted by crypto enthusiast K.O. Kryptowaluty in a post on X.

A line of credit serves as a loan agreement between a financial institution and an individual or company, enabling the borrower to withdraw funds up to a predetermined credit limit. These funds can be utilized as needed, with interest typically paid only on the borrowed amount.

According to Kryptowaluty, the use of cryptocurrency ETFs for lending and as collateral in brokerage activities is expected to continue unaffected, contingent upon the risk tolerance of individual brokers.

While DTCC’s stance reflects opposition to cryptocurrency ETFs, other established players have taken a different approach. Goldman Sachs clients have re-entered the cryptocurrency market in 2024, driven by renewed enthusiasm following the launch of spot Bitcoin ETFs.

Since their introduction, these ETFs have garnered substantial institutional interest, accumulating 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.

However, 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 postponed its decision on applications for spot Bitcoin ETF options. The regulatory body is extending the deadline and soliciting public comments within the next 21 days, with rebuttals due in 35 days.

The SEC has raised questions about whether options on spot Bitcoin ETFs should adhere to 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.

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

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