The Depository Trust & Clearing Corporation (DTCC) announced today that it will not provide any collateral value to ETFs and investment tools investing in Bitcoin or other cryptocurrencies. This announcement comes as part of the annual update to credit limits. The adjustment to the collateral value of certain securities will take effect on April 30, 2024. The rule update may impact the valuation of positions applied in the Collateral Monitor.
DTCC’s decision to implement a 100% valuation discount for ETFs and investment tools related to cryptocurrencies has raised concerns among some communities, as it may affect the investment strategies of many institutions. However, a crypto KOL, @KO_Kryptowaluty, suggests that there is no need to worry excessively. According to his observations, this update only applies to settlements between entities in the Letter of Credit (LOC) system. He explains that distinguishing between different settlement methods such as Delivery versus Payment (DvP) and LOC is crucial in financial transactions. DvP is the standard settlement mechanism used in most securities transactions, ensuring that securities are only delivered when the corresponding payment (cash or other assets) is made. On the other hand, LOC is a financial instrument that allows market participants to use borrowed funds for short-term trading financing or meet other liquidity needs.
According to his judgment:
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