On Friday the Depository Trust Company (DTC) published an update regarding the valuation of collateral it accepts for settlement purposes. To the dismay of the crypto community, the DTC applies a 100% haircut on any Bitcoin ETFs, crypto funds or investment vehicles that include crypto. This means it effectively doesn’t accept crypto as collateral. The DTC is a clearinghouse for settling trades, processing $446 trillion of conventional transactions in 2023, and is a subsidiary of the DTCC.
There are at least two sound reasons why crypto gets a 100% haircut. The first is its inherent volatility and lack of ratings, characteristics that makes it a risky asset for collateral. The second reason is the Basel Committee rules for bank exposure to cryptocurrencies.
To settle transactions and avoid exposing the DTC to too much risk, participants must provide cash or collateral exceeding the amount they owe. If they go overdrawn, transaction settlement will be delayed.
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