Nasdaq Inc. Halts Crypto Custody Business Plan Amid Regulatory Shift

Nasdaq Inc., a major mainstream financial firm, recently announced that it will no longer continue with its plan to launch a crypto custodian business in the United States. The decision was driven by the evolving business and regulatory landscape in the country. In addition, the company has ceased its attempts to acquire a license related to the venture. Nonetheless, Nasdaq will persist in expanding its technological capabilities to facilitate the handling of cryptocurrencies for its clients.

Statement from the CEO

In the second-quarter earnings call on Wednesday, Adena Friedman, the CEO of Nasdaq, stated, “We remain committed to supporting the evolution of the digital asset ecosystem in a variety of ways.” Friedman hinted at partnerships with potential ETF issuers, including a recent collaboration with BlackRock Inc. to propose an exchange-traded fund invested directly in Bitcoin. She further added that while it is “possible” for Nasdaq to enter the crypto business in the future, it currently is “not the right time.”

Regulatory Concerns

Nasdaq’s decision comes amidst a broader crackdown by regulators aimed at protecting the US financial system from potential risks associated with cryptocurrencies. Authorities have cautioned banks about their exposure to crypto businesses. The US Securities and Exchange Commission has also initiated a series of lawsuits against several major industry firms, including Binance and Coinbase Global Inc. The issues raised by regulators involve risks that could potentially destabilize federally insured banks and conflicts of interest that could arise from the failure of some crypto platforms to separate different aspects of their businesses, such as custody, market-making, and trading.

Potential Impact

The termination of the U.S. custody business plan is expected to have a “modest financial impact” on Nasdaq, contributing to a decrease in its full-year expense growth guidance. Despite this setback, Nasdaq continues to diversify its revenue sources beyond its primary exchange business. Investments in software, data, and other offerings have been made. Nasdaq also provides software for those in the crypto industry, which includes surveillance and trading tools.

Previous Crypto Endeavors

Last September, Nasdaq announced its intention to provide custody services for Bitcoin and Ether for institutional investors and applied for approval from the New York Department of Financial Services. This step, seen as a sign of Wall Street institutions deepening their engagement with digital assets, raised expectations of a launch by the end of the second quarter. The company also continues to list Coinbase and has filed the necessary paperwork for recent Bitcoin ETF applications from BlackRock and others.

Global Reactions and the Road Ahead

On the other side of the Atlantic, Societe Generale’s crypto arm received approval from France’s financial regulator to offer crypto services, including crypto custody, fueling concerns that the U.S. might be losing its competitive edge in the crypto industry as other jurisdictions embrace it. For a more comprehensive look at the evolving regulations in the crypto landscape globally, visit the Council on Foreign Relations.

Conclusion

Nasdaq’s retreat from the crypto custody business is seen as a minor disappointment for those hopeful about the momentum around spot Bitcoin ETF filings and the recent court ruling in the SEC’s lawsuit against Ripple. However, investors and market participants are hopeful that introducing regulated products into the market might clarify the regulatory environment in the future.