Crypto ETF Collateral On DTCC Cut By 100% In Evaluated Market Price

Key Points:

• DTCC updates collateral valuation rules, increasing haircut for B1-B3 bonds and excluding cryptocurrencies from collateral value.
• Crypto ETF collateral to receive a 100% haircut, impacting their use as loan collateral.
• Changes expected to affect firms’ collateral requirements and investment strategies.

The Depository Trust & Clearing Corporation (DTCC), responsible for settling the majority of securities transactions in the United States, has revealed adjustments to collateral valuation, slated to take effect from April 30, 2024.

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DTCC Implements Changes to Crypto ETF Collateral

Among the modifications, bonds rated B1 to B3 will see a 70% reduction in evaluated market price when utilized as loan collateral, up from the previous 50%. This adjustment poses challenges for businesses, compelling them to provide more collateral to maintain existing loan levels.

Notably, crypto ETF collateral, specifically Bitcoin, will no longer carry collateral value for loans, subject to a 100% haircut. Despite the burgeoning interest in digital assets, particularly cryptocurrencies, their inclusion as collateral has been discounted, reflecting the ongoing volatility and limited adoption of crypto-based ETFs in lending practices.

Impact of DTCC’s Revised Collateral Valuation on Financial Markets

While this shift affects various securities beyond cryptocurrencies, the spotlight on crypto is indicative of evolving regulations amid the emergence of digital asset investment vehicles. These changes are anticipated to significantly influence collateral valuation methodologies, potentially altering investment strategies across firms.

Although the immediate impact on crypto ETF collateral may seem minimal due to their nascent status and volatility, DTCC‘s decision underscores the cautious approach toward integrating cryptocurrencies into traditional financial systems.