The impact of DTTC not allowing Bitcoin ETFs to be used as collateral may not be as negative as many people think. However, April 26 continued to witness gloomy cash flow from ETFs.
DTTC does not allow Bitcoin ETFs to be used as collateral - BlackRock "stands still" for 3 consecutive days
On April 27, 2024, the cryptocurrency community was stirred by the news that the United States Depository Trust and Clearing Company (DTTC) signed a memorandum not allowing organizations to use crypto ETFs as collateral. challenge.
EFFECTIVE TUESDAY, DTC TO ASSIGN 100% HAIRCUT TO ALL CRYPTOCURRENCY INVESTMENTS⚠️
— MB (@741trey)April 26, 2024
FIRMS WILL NO LONGER BE ABLE TO UTILIZE CRYPTO AS COLLATERAL, INCLUDING ETFS AND OTHER SPOT PRODUCTS. pic.twitter.com/gRfbdG8ZYm
More specifically, ETFs or any instruments that use BTC or other cryptocurrencies as underlying assets will be subject to a 100% haircut.
The term haircut here refers to the difference between the market value and collateral value of a property. Simply put, if you use a house with a market value of $100,000 as collateral to borrow money. A 30% haircut means the bank only values this house at $70,000.
Haircut guarantees lenders less risk of price fluctuations. Haircut also helps reduce systemic risk by limiting financial institutions' exposure to each other.
Then, looking at DTTC's latest announcement, it can be seen that this is a signal that is more beneficial to the market than harmful.
One expert explains:
this is in regards to acceptable collateral for using a line of credit to settle trades with the DTCC. many other securities have 100% haircut for this particular LOC facility (including any stock priced below $5), and the vast majority of trades settle DvP not with an LOC.…
— KΞΞGAN (@zeroxkeegan) April 27, 2024
"DTTC's announcement is related to which collateral to use to calculate the credit limit, to handle clearing with DTTC. Many other securities also have a 100% haircut, any stock priced under 5 USD also has All have 100% haircut.
The use of crypto ETFs for lending and collateral with brokers is not affected, but only depends on the broker's risk tolerance."
In general, financial experts confirm that this is not negative news at all, advising the community not to panic.
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— Crypto Mikey (@CryptoCX1) April 27, 2024
As far as borrowing against for other assets, you never could borrow against it much, maybe a few points. So at 0% borrowing power, it's a non event.
Couple this with high rates, not a lot of borrowing against assets for other assets going on anyways. May have been a big…
"This is like bullish news for the market, because this forces companies with current ETFs such as BlackRock, Fidelity,... to hold more BTC spot to serve customer needs."
Large organizations will not be able to use crypto ETFs to borrow additional assets, thereby limiting the risk of BTC price fluctuations affecting the loan. Furthermore, it will not cause risks related to many other organizations through overlapping loan-lending networks.
Meanwhile, the ETF market on the last trading day of the week (April 26) continued to witness gloomy Capital flows. According to Farside, BlackRock's IBIT recorded the third consecutive day of zero cash flow.
Source: Farside
Fidelity's FBTC and Bitwise's BITB had negative Capital of -2.8 and -3.8 million USD, respectively. The Dump pressure from Grayscale's GBTC is still there with -82.4 million USD. Among the 10 ETF funds currently trading on the market, only ARKB of ARK 21Shares has a positive inflow of 5.4 million USD.
Thus, the trading day April 26 (local time) witnessed a total cash outflow of 83.6 million USD.
The gloomy situation of ETFs is directly reflected in the price of BTC. The king coin only fluctuates around 63,100 USD, not changing much compared to 1 day ago.
1H chart of the BTC/ USDT pair on Binance at 11:30 AM on April 27, 2024
ETH also performed similarly, changing hands at just $3,127.
1H chart of the ETH/ USDT pair on Binance at 11:30 AM on April 27, 2024
But while BTC decreased slightly, Altcoins dumped heavily, many coins continued to record a decline of up to double digits. The whole market is bleeding.
Fluctuations of leading cryptocurrencies in the market at 11:30 AM on April 27, 2024
Coin68 compiled
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