DTCC Announces ETFs with Bitcoin Exposure to Hold Zero Collateral Value for Loans

7Ary...USep

27 Apr 2024

DTCC's revision of collateral values for securities, especially ETFs containing cryptocurrencies like Bitcoin, sparks concerns in the financial sector.

STORY HIGHLIGHTS

Effective April 30, 2024, ETFs with crypto exposiure will face a 100% haircut, says DTCC.
The zero collateral assignment applies solely to inter-entity settlement in the LOC system.
Despite regulatory challenges, Bitcoin ETFs continue to attract investors.

The financial services behemoth DTCC has unequivocally stated its stance: it will not allocate any collateral to exchange-traded funds (ETFs) with exposure to Bitcoin or cryptocurrencies, nor will it extend any loans against them.

DTCC Giving A Big Blow to Bitcoin ETFs?

Starting April 30, 2024, the Depository Trust & Clearing Corporation (DTCC) will enact amendments to collateral values for select securities as part of its annual line-of-credit facility renewal. These modifications could impact position values within the Collateral Monitor.
DTCC announced that effective immediately, no collateral value will be assigned to Exchange-Traded Funds (ETFs) or similar investment instruments featuring Bitcoin or other cryptocurrencies as underlying assets. Consequently, these securities will face a 100% haircut.
However, popular cryptocurrency enthusiast K.O. Kryptowaluty explained that this would be applicable only to the inter-entity settlement in the Line of Credit (LOC) system.
A Line of Credit serves as a financial tool enabling market participants to access borrowed funds for short-term transaction financing or to address liquidity requirements. The utilization of cryptocurrency Exchange-Traded Funds (ETFs) for lending purposes and as collateral in brokerage activities remains unaffected, remaining subject to the risk tolerance of individual brokers.

The launch of spot Bitcoin ETFs has led to growing institutional interest in the investment product. Within three months of launch, all the U.S. Bitcoin ETFs have collectively garnered more than $12.5 billion in assets under management (AUM).

BTC ETF Inflows Are Decelerating

After a strong start to the launch of Bitcoin ETFs, the overall inflows have been on a decelerating trajectory in recent weeks. Over the last three days, these spot Bitcoin ETFs have witnessed strong outflows, reported by several ETF issuers.
In the latest data reported on April 27, the total net outflow of Bitcoin spot ETFs amounted to $83.6147 million. Grayscale’s ETF, GBTC, experienced a significant single-day outflow of $82.4197 million. Currently, the historical net outflow of GBTC stands at a substantial $17.185 billion, as per data from Farside investors.

While DTCC has taken a stand against crypto ETFs, the same is not true for other traditional players. 100-year-old bank BNY Melon recently stated that it is seeking exposure to Bitcoin ETFs. The recent submission of BNY Mellon’s Form 13F to the Securities and Exchange Commission has garnered significant attention across the global crypto community.
The bank’s investments in BlackRock and Grayscale Bitcoin ETFs signify not only local occurrences but also serve as a global indication of the growing acknowledgment and integration of cryptocurrencies within the traditional financial sector.

Philadelphia-based bank Republic First Seized by US Regulators; What’s Next?

Regulatory authorities have taken control of Republic First Bancorp as a result of its collapse with a decision to sell it to Fulton Bank.

STORY HIGHLIGHTS

The Federal Deposit Insurance Corp. announced that US regulators had seized Republic First Bancorp
To "protect depositors," Fulton Bank, a division of Fulton Financial Corp., has been designated as a receiver by the FDIC, which stated that it will buy all of Republic Bank's assets and assume nearly all of its deposits.
Republic First Bancorp—which had been in difficulty for a while—officially failed with possibly zero to less involvement of digital assets in this case.

The collapse of Republic First Bancorp has led to the bank’s seizure by regulatory authorities. According to news reports, the Federal Deposit Insurance Corp. announced that US regulators had seized Republic First Bancorp and agreed to sell it to Fulton Bank. The failure of the banks highlights problems faced by smaller banks in the US.

Republic First Will be Sold to Fulton Bank

After giving up on funding negotiations with a group of investors, the Philadelphia-based bank was taken over by the Pennsylvania Department of Banking and Securities. To “protect depositors,” Fulton Bank, a division of Fulton Financial Corp., has been designated as a receiver by the FDIC, which stated that it will buy all of Republic Bank’s assets and assume nearly all of its deposits.

No Involvement of Crypto in Republic First Bancorp Collapse?

Last year saw four bank failures in the US. On March 8, Silvergate Bank closed, on March 10, Silicon Valley Bank collapsed, and on March 12, Signature Bank failed. Regulators have questioned cryptocurrency’s participation in bank failures in the past weeks. Still, in the case of First Republic, the bank appears to have failed without the assistance of digital assets.
The Federal Deposit Insurance Corporation stated on March 28 that Silvergate’s “business model focused almost exclusively on providing services to digital asset firms.” The agency said the company’s reliance on cryptocurrency was dangerous.
The FDIC further stated that in Signature’s instance, the run was ultimately caused by concerns about the cryptocurrency market, despite the bank having a more varied deposit base.
However, Republic First Bancorp—which had been in difficulty for a while—officially failed with possibly zero to less involvement of digital assets in this case. Though the full details of asset exposure for the bank are still not fully known, the regulators will likely not be able to blame this fall on the crypto markets.
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