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December 16, 2021

New crypto index will attract circumspect investors

By Katie Smith-Wong

FTSE Russell, the London Stock Exchange subsidiary that produces the FTSE 100, announced on December 6 that it will develop a crypto index in the coming months.

The launch is unsurprising

The writing has been on the wall for a while now: institutions cannot ignore crypto. The major banks have been opening crypto desks throughout 2021 and ProShares launched the first Bitcoin ETF in October. ProShares’s ETF was for investors interested in Bitcoin but who were reluctant to trade it directly. Much of this reluctance was due to experienced investors feeling more comfortable using familiar brokers, but much was due to more legitimate concerns. Many popular crypto exchanges have poor security and almost non-existent customer service—Binance is particularly bad in this regard. Keeping coins in exchanges risks hacking but keeping them in wallets involves navigating a tortuous technological set-up and risks irreversibly losing all coins should you forget your wallet address or key. There are plenty of reasons for investors to feel more comfortable with an ETF on an established broker.

The index must deal with an unpredictable market

The launch of a full-blown crypto index will attract even more hesitant investors. Rather than following the value of just Bitcoin, the index will follow the weighted average value of 40 top crypto assets. It will include all the familiar names and many more.

However, it cannot be said outright that such an investment is necessarily stable—they are still crypto assets after all. The whole crypto market tends to move at once: Bitcoin and Ethereum lead, and everything else follows. Other indices are less subject to the movements of their major assets—the S&P does not swing just because Tesla does. It remains to be seen whether this crypto index will be more stable than Bitcoin.

Crypto’s future promises to be more restrained

It is hard to imagine crypto interest being any more feverish than it has been in the last two years. In the coming years, as real crypto use cases start to be adopted and our picture of crypto’s role in the future comes into focus, markets will calm down and crypto will begin to resemble a more conventional asset. Also, the associated technology—wallets, ledgers, and the tools to facilitate interaction with them—will become more sophisticated and accessible. Then it will be easy and common to trade crypto directly. But in the meantime, ETFs and indices will serve as a causeway for circumspect investors.