Crypto ETFs Face Zero Collateral Value For Loans: Higher Risk For Investors?

Key Points:

• DTCC renders ETFs with cryptos valueless for loans.
• Haircut values for certain bonds increase and securities may get a 100% haircut under specific conditions.

Starting April 30, 2024, the DTCC will assign zero collateral value to ETFs or investments with Bitcoin or other cryptocurrencies, increasing risk due to decreased liquidity.

The Depository Trust & Clearing Corporation (DTCC) is set to implement changes to the collateral value of certain securities, effective April 30, 2024.

DTCC To Assign Zero Collateral Value To Crypto

Notably, the DTCC has declared that Exchange-Traded Funds (ETFs) or other investment vehicles that include Bitcoin or other cryptocurrencies as underlying investments will not be assigned any collateral value for loans starting next Tuesday.

This means such assets will be subject to a 100% haircut, potentially increasing the risk for investors due to decreased liquidity. However, this move could also curtail Wall Street’s leverage strategies.

The changes are part of the annual renewal of the line-of-credit facility and could impact the value of positions applied to the Collateral Monitor.

Readmore: Phoenix Wallet US To Exit App Stores On May 3rd Amid Regulatory Pressure

Additional Changes and Impact on Securities

Other changes include an increase in the haircut value for corporate notes or bonds rated B1 to B3 from 50% to 70%, and the assignment of a 100% haircut to securities issued by an affiliate of any lender to the joint DTC and NSCC committed 364-day line-of-credit facility.

Securities will also receive a 100% haircut if they are matured if the issuer is bankrupt, or if the security hasn’t been priced by an approved DTC pricing model or third-party vendor for 3 or more business days.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.