DTCC Cuts Bitcoin ETFs’ Collateral Value To Zero

Financial institutions are cautious about using Bitcoin ETFs for lending or raising funds. The Depository Trust and Clearing Corporation (DTCC) is an important part of the financial system. On April 26, 2024, DTCC decision That surprised some cryptocurrency supporters. They said they will no longer accept Bitcoin ETFs as collateral for loans or fundraising activities within their system.

This decision, effective April 30, 2024, means these ETFs will receive a 0% collateral rating under DTCC’s credit facility. Collateral value is very important to financial institutions because it determines their borrowing capacity based on the value of their assets. Therefore, if a Bitcoin ETF has a valuation of 0%, it is effectively excluded from consideration when seeking financing within DTCC’s system.

Although Bitcoin prices fell slightly on this news, crypto experts like KO Kryptowaluty believe that this change will only affect the way financial institutions borrow from each other using the DTCC framework. This affects settlements between entities within the credit facility system. More simply, the impact may be limited to the borrowing process between financial companies that use the DTCC’s system.

The DTCC ruling should not be seen as a rejection of cryptocurrencies by traditional financial companies. Prominent financial institutions such as Goldman Sachs have seen an increase in interest in the crypto market, coinciding with the introduction of spot Bitcoin ETFs in the US in 2024.

Unlike derivatives-based futures ETFs, these ETFs that hold Bitcoin directly attracted a lot of attention. The U.S.-based All Bitcoin ETF has grown assets under management to over $12.5 billion in just three months. This highlights the growing demand from institutional investors for this asset class.

DTCC decision causes anxiety for short-term Bitcoin ETFs

After the news about the DTCC move, the crypto market experienced some turmoil. Over the past few days, several companies have witnessed investors withdrawing funds from Bitcoin ETFs. Farside Investors reported net outflows worth $218 million on April 25 alone. Additionally, his GBTC on Grayscale, a prominent Bitcoin investment product, saw him withdraw $82 million worth of money in one day.

DTCC’s decision could shape the future of Bitcoin ETFs. While borrowing through the system may become less attractive for ETF holders, it may not affect the ability of individual investors to gain Bitcoin exposure through these tools or the broader crypto market.

Additionally, the significant inflows observed in the Spot Bitcoin ETF’s first few months indicate solid underlying demand from institutions. Recent outflows may be a temporary correction within broader growth trends. Time will tell how this story develops, but one thing remains certain. That is, the relationship between traditional finance and cryptocurrencies is rapidly evolving.

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