Bitcoin king Mike Novogratz has made another play to open up crypto trading - this time partnering with Bloomberg on a new index

Reuters/Rick Wilking

Mike Novogratz speaks at the SALT conference in 2015.

• Former Goldman Sachs trader and bitcoin king Mike Novogratz is partnering with Bloomberg LP to start an index for the crypto industry.
• The fund was launched Wednesday under the name Bloomberg Galaxy Crypto Index and it's made up of 10 of the most liquid cryptocurrencies.

The biggest name in cryptocurrencies is partnering with one of the finance industry's old guard.

Former Goldman Sachs trader and bitcoin king Mike Novogratz has joined with Bloomberg LP to start an index for the industry, according to a statement Wednesday from the two firms.

Launched on Wednesday under the name Bloomberg Galaxy Crypto Index, it's made up of the 10 most liquid cryptocurrencies, subject to exchange and size thresholds. Constituent coins are capped at 30% of the total and can't be less than 1%, Novogratz said in a Tuesday interview. The index will be rebalanced monthly.

Today, bitcoin and ether, the coin used on Ethereum's network, each make up 30 percent of the index. That's followed by XRP, the token created by Ripple, at 14 percent.

"We wanted an institutional player for the whole ecosystem, and I think it's important for the crypto ecosystem,'' Novogratz said. "You're starting to see more institutional participation and what they're looking for is this architecture. Here's an index that will feel like the S&P 500 in a few months, that people can benchmark themselves against.'

The launch completes a roughly five-month process begun by Novogratz. Galaxy Digital Capital Management, the asset management arm of Novogratz's cryptocurrency merchant bank, and Bloomberg have set up a joint venture to share licensing revenue. The index will be owned and administered by Bloomberg, which will determine what coins go in and out at each rebalancing and act as the calculation agent.

The index looks at the broad market and chooses coins based on their market capitalization, using a rules-based methodology. Bloomberg also conducted a bottoms-up, coin-by-coin due diligence process, Novogratz said. Galaxy Digital Capital Management consulted on the methodology and the broad guidelines, he said.

Novogratz founded Galaxy Digital LP, the parent company, as a merchant bank with trading, asset management and principal investing businesses in 2017. His crypto journey started in late 2015, according to Bloomberg News, when he invested in ether and then left for a vacation in India. By the time he returned, the value of his holdings had soared and he was hooked.

Novogratz is betting that price volatility and regulatory crackdowns on crypto won't be enough to stop the spread of a decentralized medium of exchange, or store of value.

"This is just one more building block in the foundation which will get, at one point, pension funds and family offices and sovereign wealth funds all participating in the crypto economy,'' he said. "We're excited to be part of it.''

Others have tried something similar. Earlier this year, Coinbase, the cryptocurrency trading platform, announced the launch of a fund to allow investors to put money into a basket or index of four of the largest cryptocurrencies. Bitwise Asset Management also operates a crypto index fund, holding ten cryptocurrencies. Both indexes are also market-cap weighted.

Even Chicago-based high frequency trader, Hehmeyer Trading, has jumped on the crypto index bandwagon, launching its own earlier this year.