FTSE Russell Preparing to Launch a Crypto Benchmark Index

London Stock Exchange subsidiary FTSE Russell, the publisher of the FTSE 100 index and other stock indices, is planning to launch a multi-asset crypto index.

It looks like the company will be expanding its offerings from the current three single-asset indices by adding a fourth with as many 46 assets sitting within it, according to a City AM report.

FTSE Russell’s head of ETF strategy and business development, Kristen Mierzwa, told the City AM newspaper: “The end goal is to have EU and UK compliant indices which sit right alongside the FTSE 100 and the Russell 2000.” The FTSE 100 is comprised of the top 100 stocks by weighted market cap on the London Stock Exchange.

The company’s current digital asset index series lists three indices: FTSE Bitcoin Index, FTSE Ethereum Index and the FTSE Cardano Index.

But with demand from financial institutions increasing rapidly as they begin to enter the nascent asset class, the need for reliable benchmark indices has become more pressing.

FTSE Digital Asset Index to set new industry standard in crypto benchmarks

The FTSE Digital Asset Index Series was launched in October.

According to FTSE Russell documentation digital asset exchanges “must pass objective and transparent vetting tests including Know Your Client and Anti Money Laundering; minimum volume requirements; data science tests for patterns that represent real trading activity; and compliance with local regulations”.

Digital asset eligibility is equally strict, and to be included each “must pass a set of objective and transparent vetting tests, for example, robust custody, use of cryptographic hash; healthy developer activity; no known security vulnerabilities; trades on a minimum of two eligible exchanges; and is not subject to surveillance or legal action by any regulatory body”.

Assuming the group maintains those rules for its multi-asset index, then coins such as Ripple’sXRP are likely to be excluded because of the regulatory uncertainty surrounding the outcome of the court case brought by the US Securities and Exchange Commission.

Recently Cardano was delisted by eToro for its US users, although the reasons for that are not clear. Whatever the reasoning, the FTSE Cardano Index has not been affected as yet.

Mierzwa said: “Right now we’ve got 43 assets which have made their way through the vetting process,” and more would be added in 2022.

She continued: “This was clearly becoming a market that people wanted data around.”

BoE and FCA still wary of digital assets

FTSE Russell expects the market capitalisation of crypto to be north of $3 trillion by 2025.

The latest move by FTSE Russell is an important legitimising signal for crypto at a time when regulators are grappling with how to make the industry safe for investors and the rules that will be needed for areas such as stablecoins and DeFi.

Also, critics might point out that the FTSE Russell methodology and eligibility criteria may appear fairly stringent, but until the levels of market surveillance of top exchanges is still not comparable to that pertaining in major equity markets.

The Bank of England and the Financial Conduct Authority are among the least crypto-friendly of central banks and financial regulators. The BoE has warned that if the crypto industry is allowed to continue growing at the current pace with scant regulatory oversight, it could pose a systemic risk to the wider financial system.

However, not everyone in the UK’s regulatory community is sold on the market opportunities offered by crypto. In October, the Bank of England called for the urgent regulation of digital assets, warning that the size of the market makes it a risk to global economic stability.

Interestingly Mierzwa says the indices compiler and publisher may introduce blended indices where crypto would be paired with less volatile established assets such as gold for example.

The City AM story was not clear whether FTSE Russell will be rolling out additional single asset indices as well as a multi-asset index.

About Gary McFarlane PRO INVESTOR

Gary was the production editor for 15 years at highly regarded UK investment magazine Money Observer. He covered subjects as diverse as social trading and fixed income exchange traded funds. Gary initiated coverage of bitcoin and cryptocurrencies at Money Observer and for three years to July 2020 was the cryptocurrency analyst at the UK's No. 2 investment platform Interactive Investor. In that role he provided expert commentary to a diverse number of newspapers, and other media outlets, including the Daily Telegraph, Evening Standard and the Sun. Gary has also written widely on cryptocurrencies for various industry publications, such as Coin Desk and The FinTech Times, City AM, Ethereum World News, and InsideBitcoins. Gary is the winner of Cryptocurrency Writer of the Year in the 2018 ADVFN International Awards.