New S&P Crypto Indexes and Digital Based Bond Offerings Emerge
Banks Can Move More Aggressively into CryptoJuly 27, 2021
BankerAdvisor recently asked if cryptocurrencies were becoming a mainstream asset class.
Now, two subsequent developments – the S&P Dow Jones Indices plan to launch three new crypto indexes and multiple digital bond issuances on blockchain platforms — signal more important new changes in perception, adoption and application of digitizing markets.
The net effect could help banks and their customers move more aggressively into the crypto market.
First Digital Bond on Ethereum
First, the European Investment Bank (EIB), the lending arm of the European Union, launched a the first ever digital bond on the Ethereum platform. Goldman Sachs, Banco Santander SA and Society Generale AG serve as joint managers.
The EIB said it believes using digital platforms may reduce the number of intermediaries and fixed costs while increasing transparency and settlement speeds.
Some analysts added that the applications of distributed ledger technology such as blockchain, as well as artificial intelligence and cloud computing, can potentially alter the lifecycle of bonds from issuance to trading to settlement.
S&P’s Three Crypto Indexes
S&P Dow Jones Indices, the firm behind the Standard & Poor’s 500 index of the 500 largest publicly-traded companies in the US, said it was launching three new crypto indexes: The S&P Bitcoin Index, the S&P Ethereum Index and the S&P Cryptocurrency MegaCap Index, which tracks both Ethereum and Bitcoin.
As the S&P is widely thought of as the best gauge of large capitalization US equities with many funds designed to track the performance of the S&P, the announcement is significant for the development of new offerings and may speed banks entry into crypto markets and the development of new products. Banks, for example, could use these indexes to build exchange traded funds, derivates and structured products tied to the price of the underlying asset or index.
The index would also allow banks to offer clients exposure to crypto assets without having to store the crypto.
The S&P DJI also said it would be considering a broader set of indices but wanted to start with those with the most liquid and recognized assets by institutions.
Like the S&P 500, which is not an exact list of the top 500 US companies by market cap and includes tech firms and financial businesses, crypto indexes could have a similar representative makeup, if not exact lists of assets.