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, nor will it extend loans against these assets. The decision will take effect from April 30, impacting inter-entity settlements within the line of credit system. While the DTCC has taken a firm stance against crypto ETFs, individual brokers may continue to use them for lending and as collateral in brokerage activities, depending on their risk tolerance.
The DTCC’s decision to remove collateral value from ETFs with Bitcoin or other cryptocurrencies as underlying assets will have a significant impact on the financial industry. This move may affect how institutions handle cryptocurrency investments and their use as collateral in various financial activities. However, despite the DTCC’s decision, other traditional players in the financial market, such as Goldman Sachs, have reentered the cryptocurrency market in 2024. This renewed interest comes after the approval of spot Bitcoin ETFs, sparking increased institutional involvement in this investment product.
The introduction of spot Bitcoin ETFs in the United States has garnered substantial institutional interest, with all U.S.-based Bitcoin ETFs accumulating over $12.5 billion in assets under management within three months of their launch. Despite this initial success, there has been a recent slowdown in net inflows into these ETFs, with multiple issuers reporting significant outflows. For example, Grayscale’s GBTC ETF experienced a notable single-day outflow, contributing to a total net outflow from GBTC of $17.185 billion.
In response to the growing interest in Bitcoin ETFs, leading financial institution Morgan Stanley is exploring the possibility of allowing its approximately 15,000 brokers to actively recommend these products to customers. Currently, Morgan Stanley offers Bitcoin ETFs on an unsolicited basis, requiring customers to approach their advisors independently. By enabling advisors to actively recommend these products, the firm could potentially expand its customer base, although it may expose itself to additional liability.
Some financial institutions, such as Raymond James Financial and Vanguard, have chosen not to offer cryptocurrency products, citing concerns about their suitability for long-term portfolios. In contrast, LPL Financial, the largest independent brokerage with over 22,000 brokers, announced plans to evaluate which Bitcoin funds it could offer to customers. Additionally, Hong Kong is preparing to launch its much-anticipated spot Bitcoin and Ethereum ETFs by the end of April, following approval from the Hong Kong Securities and Futures Commission. This initiative aims to establish Hong Kong as a hub for digital assets by introducing a range of cryptocurrency ETFs.
Overall, the decision by the Depository Trust and Clearing Corporation to remove collateral value from ETFs with cryptocurrency exposure will impact inter-entity settlements within the line of credit system. While some traditional players like Morgan Stanley are exploring ways to expand their offerings of Bitcoin ETFs, others remain cautious about entering the cryptocurrency market. Furthermore, the approval of spot Bitcoin ETFs in the United States has generated significant institutional interest, leading to substantial inflows into these investment products. Despite recent outflows from these ETFs, the cryptocurrency market continues to evolve, with new offerings expected in regions like Hong Kong.
