The Depository Trust & Clearing Corporation (DTCC), a major financial services provider, has announced a significant change in its collateral policies. Effective April 30, 2024, DTCC will no longer assign any collateral value to exchange-traded funds (ETFs) that have Bitcoin or other cryptocurrencies as their underlying assets.

This decision means that these cryptocurrency-linked ETFs will face a 100% haircut, effectively rendering them unusable as collateral for loans within DTCC's line-of-credit facility. This move by DTCC is seen as a significant blow to the growing popularity of Bitcoin ETFs, which have been gaining traction among institutional investors.

However, it's important to note that this change only applies to the inter-entity settlement within DTCC's line-of-credit system. The use of cryptocurrency ETFs for lending purposes and as collateral in brokerage activities remains subject to the individual risk tolerance of each broker.

The launch of spot Bitcoin ETFs has generated substantial interest from institutional investors, with the U.S. Bitcoin ETFs collectively amassing over $12.5 billion in assets under management (AUM) within just three months of their debut. But in recent weeks, the inflows into these ETFs have been decelerating, with the latest data showing a net outflow of $83.6147 million over the last three days.

While DTCC has taken a firm stance against crypto ETFs, other traditional financial institutions are embracing the trend. BNY Melon, a 100-year-old bank, has recently disclosed its investments in BlackRock and Grayscale Bitcoin ETFs, signaling the growing acceptance and integration of cryptocurrencies within the traditional financial sector.

Overall, DTCC's decision to assign zero collateral value to Bitcoin-linked ETFs is a significant development that could have far-reaching implications for the cryptocurrency investment landscape. However, the broader financial industry continues to explore and adapt to the evolving digital asset ecosystem.