Bitcoin falls after DTCC rules out collateral for bitcoin-linked ETFs

By Clive McKeef

The price of bitcoin (BTCUSD) fell to a low of $62,801 early Saturday from $63,476 late Friday after the Depository Trust and Clearing Corporation (DTCC) announced it will not allocate any collateral to exchange-traded funds (ETFs) with exposure to bitcoin or cryptocurrencies and will not extend loans against them effective April 30, 2024.

The DTCC is a financial services company that provides clearing and settlement services for the financial markets.

This decision implies that financial entities utilizing DTCC's clearing and settlement services will not be able to use cryptocurrency-linked ETFs as collateral when seeking credit or engaging in similar financing activities through DTCC's system. The change is expected to affect how these ETFs are treated in terms of financial stability and credit assessment, CoinTelegraph reported.

However, in an X post, cryptocurrency analyst K.O. Kryptowaluty clarified that this would only apply to inter-entity settlement within the line of credit system.

A line of credit is a borrowing arrangement between a financial institution and an individual or entity that allows the borrower to draw funds up to a predetermined credit limit.

However, despite the DTCC's new regulations, the broader market and brokerage activities may see a small impact.

According to K.O. Kryptowaluty, the use of cryptocurrency ETFs as collateral or for lending purposes may continue at the discretion of individual brokerage firms, depending on their risk management strategies and tolerance.

"The use of cryptocurrency ETFs for lending and as collateral in brokerage operations remains unchanged and continues to rely on the risk appetite of individual brokers. Ignore the baseless panic; there's nothing substantial happening," K.O. Kryptowaluty wrote on X, formerly Twitter.

The introduction of spot Bitcoin ETFs in the United States this year spurred increasing institutional interest in cryptocurrencies. Within three months of their launch, all U.S.-based Bitcoin ETFs have accumulated over $12.5 billion in assets under management.

However, net inflows to the ETFs have recently slowed down, according to CoinTelegraph. Multiple ETF issuers have reported significant outflows recently.

-Clive McKeef

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04-27-24 0808ET

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