Exclusive: Fund tracking index of digital currencies like bitcoin to launch

LONDON (Reuters) - A London-based start-up said on Wednesday it would launch the first fund to track an index of digital currencies such as bitcoin in the coming weeks.

A Bitcoin (virtual currency) paper wallet with QR codes and a coin are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France, May 27, 2015. REUTERS/Benoit Tessier/File Photo

DLT Financial said it hopes the tracker fund will make such currencies a more attractive investment asset class.

The new company was spun out of fintech start-up Tramonex, which earlier this year received a 250,000 pound ($333,000) grant from the government to develop a new prototype for currency settlements using the technology that underpins bitcoin.

The index comprises 10 cryptocurrencies - so-called because they use cryptographic signatures to keep the transactions secure. As well as the original cryptocurrency bitcoin, the index includes ether, the digital currency that powers blockchain platform Ethereum, and Ripple, a digital currency designed for bank-to-bank payments.

For a graphic on how bitcoin works, click:

Cryptocurrencies are used to send money around the world instantly and at low cost, with no need for third-party checks. They are also bought as an investment that has almost no correlation with other currencies and asset classes, though their volatility - and complexity - puts many off.

“We’re really looking to bridge the gap between the existing blockchain world of tech and the more traditional institutional investment community,” said Dave Askey, co-founder of DLT Financial and the chief technology officer of Tramonex.

“Currently it’s really very hard to invest in these assets as a pretty deep technical knowledge is needed to buy and manage them. We want to bring (them) to the wider community.”

Many investors worry about the security of digital currencies - Hong-Kong-based bitcoin exchange Bitfinex was just the latest exchange to fall victim to a hacking attack last month.

But DLT says that it will use cold storage - where data is taken offline and stored in hard drives to guard against the possibility of being hacked into and having money stolen - and that it and not its investors will bear the risk of theft.

Editing by Hugh Lawson