DTCC Devalues Bitcoin ETFs, Assigns Zero Collateral Value

DTCC will assign zero collateral value to Trade-Traded Funds (ETFs) comprising Bitcoin (BTC) or cryptocurrencies as underlying assets, starting April 30. Custodia Financial Institution CEO Caitlin Long supports this move, as it reduces leverage-based financialization practices, thereby mitigating risks within the financial system. Long emphasizes that the resolution will prevent Wall Street from playing financial games using Bitcoin ETFs, which could have been blamed for any resulting issues.

Depository Trust and Clearing Corporation (DTCC) Assigns Zero Collateral Value to Bitcoin-Based Exchange-Traded Funds (ETFs)

Introduction

On April 30, 2023, the Depository Trust and Clearing Corporation (DTCC) will implement amendments to collateral values for certain securities, including Exchange-Traded Funds (ETFs) that have exposure to Bitcoin or other cryptocurrencies. This decision marks a significant shift in the treatment of Bitcoin ETFs by a major financial institution, and has drawn both support and skepticism from market participants.

Caitlin Long's Perspective

Caitlin Long, the CEO of Custodia Financial Institution, has expressed her support for DTCC's decision. In a social media post, Long stated that the move will help mitigate risk in the financial system and reduce the leverage-based financialization practices that Wall Street might have engaged in with Bitcoin ETFs.

"I have no problem with this because it reduces the leverage-based financialization games that #WallSt might have played (& upon which TPTB would have blamed #Bitcoin for the inevitable problems even tho they’d have had nothing to do with Bitcoin itself)," Long wrote.

Implications for Crypto ETFs

DTCC's decision will affect the collateral values for certain securities within its line-of-credit facility. However, it is important to note that the role of crypto ETFs as investment vehicles and as collateral in brokerage activities remains unaffected.

Despite DTCC's move, institutional interest in crypto investment products remains strong. Spot Bitcoin ETFs, which launched in the United States in October 2022, have collectively amassed over $12.5 billion in assets under management (AUM) within just three months.

Outflows from Bitcoin ETFs

It is worth noting that Bitcoin ETFs have experienced significant outflows recently. According to data from ETF.com, U.S. Bitcoin ETFs saw outflows of $328 million this week, indicating a cooling of investor sentiment towards these funds.

Custodia Financial Institution vs. Federal Reserve

Custodia Financial Institution is currently engaged in a legal battle with the Federal Reserve over the latter's denial of a master account to the Wyoming-based bank. Custodia has filed a notice of intent to appeal a recent ruling by a Wyoming district judge that upheld the Federal Reserve's authority to do so.

The outcome of the appeal could have significant implications for Custodia and for banks seeking to provide services to crypto companies. A favorable ruling for Custodia could strengthen its position in the lawsuit and potentially open the door to greater financial institution involvement in the crypto industry.

Conclusion

The DTCC's decision to assign zero collateral value to Bitcoin ETFs underscores the evolving regulatory landscape for cryptocurrencies. It remains to be seen how this decision will impact the adoption and usage of crypto-related investment products. However, it is clear that institutional interest in crypto remains strong, despite recent outflows from Bitcoin ETFs. The outcome of Custodia Financial Institution's appeal against the Federal Reserve will also be closely watched, as it could have broader implications for the relationship between banks and crypto companies.