Nasdaq, the second-largest stock exchange in the world by market capitalization, has decided to halt its plans to launch a crypto custody service for its clients, citing the regulatory uncertainty in the US crypto industry as the main reason .
What is Crypto Custody Service?
A crypto custody service is a service that allows institutional investors and other clients to securely store and manage their crypto assets with a third-party provider. The provider typically offers features such as cold storage, insurance, auditing, and compliance.
Nasdaq had announced its intention to launch a crypto custody service in 2021, as part of its broader strategy to expand its digital asset business and tap into the growing demand for crypto-related products and services . Nasdaq had partnered with several crypto firms, such as Anchorage, Gemini, and Symbiont, to develop its crypto custody solution . Nasdaq had also obtained a trust license from the New York State Department of Financial Services (NYDFS) to operate as a qualified custodian for crypto assets .
Why Did Nasdaq Halt Its Plans?
Nasdaq’s decision to halt its plans for the crypto custody service was influenced by the regulatory challenges that it faced in the US crypto industry, which has been under increased scrutiny and pressure from the Securities and Exchange Commission (SEC) and other regulators .
The SEC has been cracking down on crypto-related activities and entities, such as initial coin offerings (ICOs), decentralized exchanges (DEXs), stablecoins, and lending platforms, alleging that they violate federal securities laws and pose risks to investors . The SEC has also been pursuing enforcement actions against some of the major players in the crypto industry, such as Binance, Coinbase, and Kraken, for allegedly operating unregistered securities exchanges, offering unregistered securities, or engaging in market manipulation .
Moreover, the SEC has not provided clear guidance on the legal status of crypto assets, such as whether they are securities or commodities, and how they should be regulated and taxed . This has created uncertainty and confusion for both crypto businesses and investors, who face legal risks and compliance costs without knowing the rules of the game .
Nasdaq’s CEO Adena Friedman said that these regulatory issues have made it difficult for Nasdaq to launch its crypto custody service in a timely and compliant manner . She said that Nasdaq will wait for more clarity and certainty from the regulators before proceeding with its plans .
What’s Next for Nasdaq?
Despite halting its plans for the crypto custody service, Nasdaq remains committed to developing its digital asset business and will focus on assisting clients with potential crypto-linked exchange-traded funds (ETFs) . ETFs are investment products that track the performance of an underlying asset or index, such as Bitcoin or Ethereum. They allow investors to gain exposure to crypto without having to buy or hold the actual coins.
Nasdaq has been working with several ETF providers, such as VanEck, WisdomTree, and Bitwise, to list their crypto ETFs on its platform, pending approval from the SEC . Nasdaq has also been providing market data and index services for various crypto products and platforms .
Nasdaq’s Friedman said that Nasdaq believes that crypto ETFs are a more viable and attractive option for investors than direct custody of crypto assets . She said that Nasdaq will continue to monitor the market for potential regulatory developments in the coming months.