In a move that signaled a new chapter for cryptocurrency’s relationship with traditional finance, a London-based startup announced on September 7, 2016, that it would launch the first fund to track an index of digital currencies including Bitcoin and Ethereum. The announcement, reported exclusively by Reuters, represented one of the earliest attempts to bridge the gap between the nascent world of cryptocurrencies and established investment frameworks.
TL;DR
- A London-based startup announced the first fund to track a digital currency index, including Bitcoin and Ethereum
- The Reuters exclusive report brought mainstream financial media attention to cryptocurrency as an investable asset class
- Bitcoin traded at $614 with a market cap of $9.7 billion at the time of the announcement
- The move preceded a wave of institutional cryptocurrency products that would emerge in coming years
- The announcement came during a period of growing regulatory attention to digital currencies globally
A Groundbreaking Financial Product
The fund, which was set to track a diversified index of digital currencies, aimed to give investors exposure to the cryptocurrency market without the complexity of purchasing and storing individual coins. While Bitcoin was the headline name in the index, the fund also included Ethereum and other major cryptocurrencies, reflecting the growing recognition that the digital currency market extended far beyond a single asset.
The concept was revolutionary for its time. In September 2016, most institutional investors viewed cryptocurrency with a mixture of skepticism and curiosity. The total market capitalization of all cryptocurrencies was approximately $11.9 billion — a fraction of what it would become in subsequent years. Bitcoin dominated with $9.7 billion, Ethereum held second place at $967 million, and the rest of the market was fragmented across dozens of smaller projects.
Creating a fund that tracked these assets required solving several challenges that were unique to the cryptocurrency space. Price discovery was fragmented across multiple exchanges, custody solutions were rudimentary, and regulatory frameworks were largely undefined. The fact that a startup was willing to tackle these obstacles spoke volumes about the growing confidence in cryptocurrency as a legitimate asset class.
The State of Crypto in September 2016
To understand the significance of this announcement, it is important to appreciate the market conditions at the time. Bitcoin was trading at $614, having recovered significantly from its post-halving consolidation period. The second Bitcoin halving had occurred just weeks earlier on July 9, 2016, reducing the block reward from 25 to 12.5 BTC, and the market was still digesting the implications.
Ethereum, trading at $11.55, was still recovering from the traumatic DAO hack that had occurred in June 2016. The resulting hard fork, which created Ethereum Classic as a separate chain, had been executed in July. Ethereum Classic was now the sixth-largest cryptocurrency by market cap at $123.8 million, trading at $1.48. The entire episode had raised serious questions about governance, immutability, and the role of intervention in blockchain networks.
Other notable cryptocurrencies in the top ten included Ripple’s XRP at $0.0059 with a $208 million market cap, Litecoin at $3.97 with $188 million, and Monero at $11.83 with $152 million. The diversity of the top cryptocurrencies underscored the need for an index product that could capture the breadth of the market rather than focusing solely on Bitcoin.
Regulatory Implications
The launch of a cryptocurrency index fund raised important regulatory questions that would occupy regulators for years to come. In September 2016, the regulatory landscape for digital currencies was still in its infancy. The SEC had not yet issued formal guidance on whether certain cryptocurrencies qualified as securities, and the concept of a cryptocurrency ETF was still years away from approval.
The London-based fund navigated these challenges by structuring the product in a way that complied with existing financial regulations in the United Kingdom. This approach — working within existing frameworks rather than trying to create new ones — would become a template for future cryptocurrency investment products.
The timing of the announcement was also notable because it coincided with growing regulatory scrutiny of cryptocurrency exchanges and initial coin offerings. While the ICO boom was still months away, regulators in the United States, Europe, and Asia were beginning to pay closer attention to how digital currencies were being traded and used.
Traditional Finance Takes Notice
The Reuters exclusive report on the fund’s launch was significant in itself. Major financial news outlets had largely ignored cryptocurrency up to this point, treating it as a niche curiosity rather than a legitimate financial instrument. The fact that Reuters — one of the world’s largest and most respected news agencies — chose to cover this story signaled a shift in perception.
Traditional financial institutions were also beginning to explore blockchain technology more seriously. The R3 blockchain consortium, which counted dozens of major banks among its members, was actively developing distributed ledger solutions for financial services. On the same day as the index fund announcement, news broke that the first stock exchange had joined the R3 consortium, further blurring the lines between traditional finance and blockchain technology.
Why This Matters
The September 7, 2016, cryptocurrency index fund announcement was a watershed moment that previewed the institutionalization of digital assets. While it would take several more years before products like Bitcoin ETFs received regulatory approval, the groundwork was being laid during this period. The fund demonstrated that there was demand for regulated, professionally managed cryptocurrency investment vehicles — demand that would eventually grow into a multi-billion dollar industry. Today, cryptocurrency index funds, ETFs, and other institutional products are commonplace, but in September 2016, the concept was radical and forward-thinking, representing one of the earliest bridges between the crypto-native world and Wall Street.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk. Always conduct your own research before making investment decisions.