On February 11, Nasdaq, the world’s second-largest stock exchange, launched Bitcoin and Ethereum indices to present accurate prices of the two leading crypto assets.
Nasdaq’s Bitcoin Index a Likely Precursor to Crypto Investment Products
According to cryptocurrency analyst Alex Ziupsnys, the introduction of the crypto indices of Nasdaq could lead to the approval of a wide range of investment vehicles in the long-term.
The analyst said:
“NASDAQ to add a bitcoin index on its platform. They are reading the writing on the wall and don’t want to get left behind. There is no stopping this. Adoption happens gradually right in front of you, until you finally pause, look around, and bitcoin is the dominant asset.”
“This is big news. The launch of Nasdaq crypto indices could lead to regulatory approval for crypto-based derivatives in the market. And as a direct initial effect could mean more interest from institutional traders. The feeds are going live Feb 25th.”
Bitcoin ETF is a Prime Example
In July 2018, the Bitcoin exchange-traded fund (ETF) proposal of Tyler and Cameron Winklevoss was officially rejected by the U.S. Securities and Exchange Commission (SEC).
At the time, among other issues, the SEC named the pricing of Bitcoin as its main concern. The commission claimed that the risk of price manipulation exists on cryptocurrency exchanges and as such, an ETF cannot be operated based on the price of digital assets on exchanges.
The official document released by the SEC explicitly stated that small trades can sway the price of Bitcoin on exchanges, and due to the presence of overseas markets, it is virtually impossible to audit all BTC transactions.
“This commenter expresses concerns regarding the Gemini Exchange Spot Price, noting that the nominal price of the Shares under the proposal is supposed to be tied to the market price of bitcoins at the Gemini Exchange, which is closely tied to the ETP proponents,” the document read.
Speaking to CNBC in November of last year, SEC Chairman Jay Clayton further emphasized that cryptocurrencies have to become free from the risk of manipulation and until the issue is addressed, an ETF will not be approved.
Nasdaq’s Bitcoin Liquid Index (BLX) and Ethereum Liquid Index (ELX) provide a real-time spot or reference rate for the price of BTC and ETH in USD derived from the most liquid parts of the global market.
The indices of Nasdaq are not concentrated in a small group of exchanges or over-the-counter (OTC) exchanges. Rather, the indices take into consideration all platforms processing cryptocurrency trades and find a reliable spot price.
BLX and ELX could serve as the base prices of Bitcoin and Ethereum for regulated investment vehicles in the long-term.
With the track record of Nasdaq in the financial sector and the emergence of a wide range of cryptocurrency indices, Bitcoin ETF operators could consider utilizing several indices including Nasdaq’s BLX and ELX to find an accurate representation of the value of leading digital assets.
Currently, firms like VanEck, Bitwise, and the Chicago Board Options Exchange (CBOE) are working with the SEC to release the first Bitcoin ETF in the U.S. market.
Liquidity is Key
As CCN.com reported earlier this week, Hwang Hyeon-cheol, a former Citi and Allianz executive, said that the cryptocurrency market still does not have a stable level of liquidity and market size for both institutional and retail investors.
Most investment vehicles that are pending approval in the U.S. are targeted at retail investors, and for their success, large liquidity and a reliable source of price is key.
Analysts expect Nasdaq’s indices to operate as the main source of crypto prices throughout the years to come, opening the door for various investment tools.
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Last modified: March 4, 2021 2:53 PM