The Depository Trust and Clearing Corporation (DTCC) has recently announced that it will not assign any collateral value to exchange-traded funds (ETFs) with exposure to Bitcoin or other cryptocurrencies. Furthermore, the DTCC will not extend loans against these assets, with the decision set to take effect from April 30. This move by DTCC will impact inter-entity settlements within the line of credit system, with individual brokers still able to use cryptocurrency ETFs for lending and as collateral in brokerage activities.
On the other hand, some traditional players, such as Goldman Sachs, have reentered the cryptocurrency market in 2024, following renewed interest after the approval of spot Bitcoin ETFs. The launch of spot Bitcoin ETFs in the US has generated increased institutional interest, with all US-based Bitcoin ETFs accumulating over $12.5 billion in assets under management within three months of their launch. However, net inflows have recently slowed down, with significant outflows reported by multiple issuers, including Grayscale’s GBTC ETF experiencing a single-day outflow of $82.4197 million and total net outflows of $17.185 billion.
Morgan Stanley is exploring the possibility of allowing its approximately 15,000 brokers to actively recommend spot Bitcoin ETFs to customers, potentially expanding its customer base but also exposing itself to additional liability. Some financial institutions, like Raymond James Financial and Vanguard, have chosen not to offer cryptocurrency products due to concerns about their suitability for long-term portfolios. However, LPL Financial, the largest independent brokerage with over 22,000 brokers, announced plans in February to evaluate which Bitcoin funds it could offer to customers. Additionally, Hong Kong is set to launch spot Bitcoin and Ethereum ETFs by the end of April, with approval granted to several fund managers by the Hong Kong Securities and Futures Commission.
The DTC system is a crucial component of the financial infrastructure in the United States, acting as the central securities depository within the larger organization of the Depository Trust & Clearing Corporation (DTCC). While DTCC has taken a firm stance against crypto ETFs, other traditional players have shown a different approach, with clients of Goldman Sachs reentering the cryptocurrency market in 2024 after the approval of spot Bitcoin ETFs. The approval of spot Bitcoin ETFs in the US has led to increased institutional interest in this investment product, although net inflows into these ETFs have recently slowed down.
The decision by the DTCC to not assign collateral value to ETFs with exposure to Bitcoin or other cryptocurrencies will have significant implications for inter-entity settlements within the line of credit system. Despite this move, individual brokers may continue to use cryptocurrency ETFs for lending and as collateral in brokerage activities based on their risk tolerance. Meanwhile, the introduction of spot Bitcoin ETFs in the US has brought renewed interest from institutional investors, although recent data shows a slowing down in net inflows into these products. Financial institutions like Morgan Stanley are exploring the possibility of expanding their sales of Bitcoin ETFs by allowing brokers to actively recommend these products to customers, potentially broadening their customer base.
