DTCC Announces 100% Crypto Haircut Policy
In Brief
- DTCC has decided to impose a 100% haircut on all investment instruments backed by crypto assets.
- Some analysts speculate that this move could lead to reduced liquidity and increased risk for investors
- However, others argued that the DTCC decision might not significantly affect crypto ETF performance.
The Depository Trust and Clearing Corporation (DTCC) has decided to implement a 100% haircut on all investment instruments backed by cryptocurrency assets.
This decision is part of a broader risk management review for other asset classes, including corporate notes and bonds rated B1 to B3, whose haircuts were raised to 70%.
How Will DTCC’s Decision Impact Bitcoin ETFs?
DTCC is a financial services firm that offers clearing and settlement services in the financial markets. It plays a pivotal role in the trading operations of recently launched Bitcoin ETFs.
Notably, DTCC’s decision will take effect on April 30 and could impact position valuation in the collateral monitor. As a result, DTCC services will no longer permit entities to use crypto exchange-traded products as collateral for financial transactions conducted through the DTC system.
“No collateral value will be given for any ETF or other investment vehicle that includes Bitcoin or any other
cryptocurrency as an underlying investment, hence will be subject to a 100% haircut,” DTCC stated.
This announcement has triggered speculation regarding its potential ramifications, with some suggesting it could initiate a reversal in Bitcoin ETF inflows. Autism Capital expressed concerns over potentially reduced liquidity and increased investor risk. Additionally, the firm noted that the move could mitigate Wall Street leverage maneuvers.
Contrary to such concerns, certain experts argued that the update may not significantly impact crypto ETF performance. They pointed out that digital assets are not the sole subject of the 100% haircut when utilizing a line of credit to settle trades with DTCC, as stocks below $5 face similar treatment.
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Moreover, they also emphasized that only specific large banks and financial institutions resort to drawing down on lines of credit for trade settlements, with most trades settling through Delivery versus Payment (DvP), minimizing the need for credit lines.
“The only entities that can draw down on the LoC are specific large banks / FIs – i doubt any of them would have had the risk appetite to pledge crypto collateral anyway. The LoC is reviewed annually – last time around the crypto ETFs didn’t exist, so seems like they’re just covering their bases for the current annual review. Note – there’s LOTS of asset types that have a 100% haircut,” 0XBoboShanti added.
Additionally, Bloomberg ETF expert James Seyffart dismissed the doomsday notions, echoing the sentiment that the update holds little tangible significance.
