Nasdaq may have just removed one of the most significant barriers before a potential cryptocurrency adoption.
The US stock market exchange on Monday announced two cryptocurrency indexes which provide real-time spot or reference rate for Bitcoin and Ethereum. Dubbed as the Bitcoin Liquid Index (BLX) and Ethereum Liquid Index (ELX), both the indexes extract price data from multiple exchanges to provide onlookers single price point for BTC and ETH. Nasdaq assured that independent auditors had verified their methodology of obtaining and unifying price data to present the best USD-equivalent value of cryptos.
“The BLX,” the exchange said, “is one of the most widely-referenced BTC indices among crypto traders and has been calculated back to 2010.”
At the same time, the ELX price data dates back to 2014, the exchange added. The indices’ underlying algorithm, created by New Zealand-based blockchain research firm Brave New Coin, will refresh price information at a frequency of thirty seconds.
IOSCO Principles
Nasdaq said that their independent auditors had verified both BLX and ELX against the critical principles proposed by IOSCO. They are investors’ security, regulating markets to ensure fairness, efficiency, and transparency, and curbing systematic risks.
https://twitter.com/rolandstautz/status/1095891062453911552
In a broader perspective, the move could lead to solving regulators’ concerns about new-age bitcoin trading derivatives. For instance, the Securities and Exchange Commission (SEC) had consecutively rejected the applications of nine bitcoin exchange-traded funds fearing market manipulation. The regulator had stated that exchanges that acted as a bitcoin’s reference price point remained loosely regulated.
Reducing Market Manipulation Risks
Some ETF applicants processed the SEC’s concerns. They took initiatives to bring more transparent pricing systems for potential investors. VanEck, for instance, launched a bitcoin price index through its New York-based subsidiary, MV Index Solutions, in November 2018.
Fast forwarding to the present, it appears Nasdaq is also working on the same concerns. The stock market operator has been very active lately in the cryptocurrency and blockchain space. In January 2019, it led a $20-million Series B of blockchain startup Symbiont.
In November 2018, a Bloomberg report claimed that Nasdaq was planning to launch bitcoin futures contract in early 2019. Per the news agency, the exchange was working with the Commodity and Futures Trading Commission (CFTC) to solve some regulatory issues. At that time, Nasdaq had partnered with VanEck to use their bitcoin index solution, as mentioned earlier, for their futures contracts.
It is not clear whether or not BLX would play any crucial role in Nasdaq bitcoin futures offering. But it inevitably opens the exchange’s horizons to achieve more stable and transparent crypto pricing indexes.
Opportunity to Attract Big Investors
The launch of Nasdaq crypto indices could lead to regulatory approval for crypto-based derivatives in the market. In the near-term, the move could project cryptocurrencies as new investment alternatives to both retail and institutional investors. According to Ari Paul, the founder and CIO of crypto fund BlockTower Capital, the institutional investment is coming to the crypto space. But, nobody should expect it to arrive earlier.
9/ the level of interest and education continues rising, but slow progress on adding crypto to the platform (whether that’s a wealth management platform at a bank, or trading services at a big hedge fund.
— Ari Paul ⛓️ (@AriDavidPaul) February 1, 2019
“I’ve been too optimistic about the pace of institutional adoption in the past,” said Paul. “It’s coming, but I can’t estimate which quarter (whether that’s this year or 2022) that we’ll see a big spike. As a humble guess, something like Q3 2019.”
Both BLX and ELX will go live on Nasdaq on February 25.
