Eurex, the European clearing house that is part of Deutsche Börse Group, has recently launched a futures and options contract against Ethereum. This joins an earlier contract for Bitcoin futures.
Both track indexes managed by FTSE Russell, which has sought to one-up its bigger rivals in the indexing game by making a big bet on digital assets.
That bet may be now paying off, says Kristen Mierzwa, New York-based head of digital assets at FTSE Russell. “We’ve made a big investment,” she said.
She credits the move to Mark Makepeace, the founder of FTSE, who launched the index provider in 1995 out of the London Stock Exchange as a British counter to MSCI, Standard & Poor’s and Dow Jones Indexes. In 2015 the group acquired another index business, Frank Russell Company.
The index business
Index vendors create equities benchmarks followed by mutual funds and other institutional investors, and sometimes by retail investors, such as the MSCI World, the S&P 500, “the Dow”, and the FTSE 100. They also customize indexes for use by asset managers, either for bespoke client benchmarks or for products like exchange-traded funds.
These index businesses have considerable power because their processes determine which stocks or countries are eligible for index inclusion, and by what proportion. They are also massive data businesses, both digesting market data and creating their own to offer clients analytics on market trends.
That’s in the equities world. Makepeace left the group in 2023 but after having decided in 2018 to turn digital assets into a business.
FTSE was looking for ways to boost its profile as well as to find new sources of revenues: a UK stock index is of only modest interest to investors outside the UK (the Russell brand is more US-centric but relatively smaller in terms of assets that track its products).
Adding crypto
Back then, there was no significant institutional interest in crypto. But digital assets seemed easy to price, and today FTSE Russell tracks more than 400 coins.
It works with a crypto-native analytics company, Digital Asset Research, which scours centralized digital exchanges, third-party custodians, and Bloomberg, for pricing information. It runs nodes on various blockchains and staking protocols, and even tracks chat on ‘Crypto Twitter’ (the X social media platform).
DAR then develops a taxonomy for assets and rules for what qualifies for index inclusion, which today includes meme coins but not non-fungible tokens.
FTSE Russell packages these with compliance and governance developed for traditional institutions and infrastructure, such as Eurex.
It also works with Grayscale to operate crypto-sector indexes for US dollar investors. Sectors include crypto, smart contract platforms, financials, consumer-and-culture tokens, and utility tokens.
Same-same but different
But a crypto index doesn’t work like an equities index. There’s more complexity because valuations are in constant flux.
In the equities world, even in countries like the US with multiple stock markets, prices are all finalized based on one time zone. In the US, that’s Eastern Standard Time. Firms trading US equities trade New York hours, even if they’re doing it from California, or Tokyo.
For Bitcoin or Ethereum, FTSE Russell operates on three timestamps, for Asia, Europe and North America. The firm ingests price feeds from DAR every 15 seconds, which it crunches into an hourly ‘fix’, representing the best price of the asset at that point.
That leaves plenty of arbitrage scope for an electronic market that trades 24/7.
Mierzwa says FTSE Russell will soon introduce a new feed at ultra-low latencies to provide a real-time index.
What’s the price?
But latency is a secondary matter. The complexity evolves once an index tracks more than one digital asset, say Bitcoin plus Ethereum plus Solana. Now each underlying asset needs its own fix, and the weights in the index must be rebalanced.
On top of that, if customers want the ‘fix’ to reflect a global price, the indexer must operate separate indexes for the three global regions. “You need multiple indexes because the resets, the weights and the index values won’t be the same,” Mierzwa said.
“The price of Ethereum at 4pm Eastern Standard Time varies, depending on what lookback model you use,” she said. (A lookback period varies by the date on which the index value is calculated.)
Local clients also want information that is tailored. For example, FTSE Russell’s first Bitcoin and Ethereum indexes were consolidated against the asset’s price versus dollars, yen and euros. But a client in Japan may only want to know the price of Bitcoin versus yen.
FTSE Russell tries to flatten these variables by using time-weighted average prices, which are calculated over periods of 15 minutes. But that doesn’t erase the slight differences between an asset that is priced in European or Asian time, versus the same asset being priced in the US.
And those discrepancies compound, eventually adding up to huge differences in investor returns.
“You never see this in equities,” she said. “Four p.m. EST is the price for US equities. But in crypto, there are lots of variables.” She added: “What is the price of Bitcoin? It’s kind of an existential question.”
Benchmarking the benchmarker
Such details highlight the challenges of fitting crypto economics into the world of traditional finance. It also shows why many institutional investors would prefer to get access to digital assets via wrappers like Eurex-listed contracts, rather than have to set up their own wallet or operate a node on DeFi protocols.
It’s also one reason why FTSE Russell’s natural inclination to benchmark itself against MSCI and S&P may not apply to its digital-asset business. FTSE Russell has $3.5 billion of assets tracking its crypto indices, primarily its contracts for Eurex.
That’s small compared to the $35 billion of assets that crypto-native indexer CF Benchmarks claims to have tracking its products. Just as FTSE Russell is tied at the hip to LSEG, CF is part of US crypto exchange Kraken, with CME Group one of its main partners for selling contracts to traditional investors.
Mierzwa attributes the discrepancy to the underlying product types: many of the assets that FTSE Russell tracks are tokens that under US regulation are considered securities. So the firm has focused its business on Europe, and is now looking to build out to Asia: it is providing indexes for spot ETFs managed by Hong Kong-licensed player Hashkey, and looking at how to support perpetual futures contracts, which are big in Asia but unknown in the US.
