CryptoCompare Eyes Asia Cryptocurrency Indexes

Digital currency data provider CryptoCompare is preparing to launch digital currency indexes for Asian markets to help drive the takeup of trading digital assets and market data in the region.

The vendor began talks with an as-yet-unnamed regional partner in April, and expects to have a product ready by August.

“We think the Far East will be very fertile ground for us—some of the big institutional names in Asia are really looking at us,” says James Harris, commercial director at CryptoCompare. “We’re working with some very well-known institutional names … that create indexes for other asset classes that track billions of dollars. They recognize that clients want something in this space, and they know they need to offer something.”

One challenge is the need to create products that—although digital currencies trade globally—have local appeal. “You’re not going to find a big Japanese institution investing in a US-based Bitcoin ETF; they want a local equivalent,” Harris says, adding that data plays a key role in understanding how digital currencies trade in different regional markets. “When an asset manager moves into digital assets, they don’t just buy Bitcoin; they buy data to be able to understand the market.”

Another challenge is understanding how the nuances of each market or jurisdiction affect the price of digital currencies traded regionally. “There can be local perturbances in the price similar to how some commodity markets trade. But instead of storage and transportation costs, the frictions in digital currencies come in the form of local capital controls and local supply and demand imbalances,” says CryptoCompare CEO Charles Hayter. “In 2017 and 2018, these were very common where Korean exchanges and Japanese exchanges were isolated and couldn’t cater to local population-specific manias. The situation and global web of liquidity are much improved now. However, there are still pockets of underserved markets that mean there are rich pickings for hedge funds looking at these market discrepancies.”

The vendor is accustomed to sourcing local data to support local investment products. “In conjunction with our partner MVIS [MV Index Solutions, a subsidiary of New York-based investment manager VanEck], we build indexes that are tailored to the needs of our clients who are building financial products that refer to them, in addition to our headline reference rate products for Bitcoin and other assets,” Hayter says. “We do find that there are regional preferences. For instance, if a client is launching an index in Japan, we would use Japanese yen-denominated prices from Japanese exchanges for the index composition.”

Beyond traded prices on different marketplaces, CrytptoCompare also captures other types of data from a variety of sources, including derivatives markets, the underlying blockchain records, datasets of know-your-customer and anti-money-laundering data, content from social media platforms, as well as taxonomies to ensure investors can compare like-for-like assets, and specialist crypto datasets from partner IntoTheBlock.

“This ecosystem has been fragmented, but it is coming together. … Because digital assets can be held anywhere, the role of a data vendor to aggregate data becomes even more important,” Hayter says.

Harris adds that large institutional investors are becoming more sophisticated in how they trade crypto assets, and thus are looking for more information and index options. 

“More and more, big macro investors are realizing that there is a match between this asset class and the profile of other asset classes. For example, it may have the same properties as gold, as an inflation hedge,” Harris says. “Indexes are important because they can drive adoption … and allow firms to create products against them. As a company, that gives us an extra revenue stream that cements us into the asset class itself. For example, if a client charges their customer 0.5% in fees, we might receive 4 basis points of that. So the more that clients start piling up assets under management in digital currencies, the more we benefit as a whole.”  

The move is a continuation of CryptoCompare’s transformation away from an ad-driven information portal to a subscriptions-driven data provider, which began in early 2017 as part of a strategy to give the vendor greater control over its recurring revenues. Since starting its index business in 2018 in response to demand for digital currency ETFs, the vendor now operates around 50 indexes.