Nasdaq Hits Pause On Crypto Custody Plans, Citing Regulatory Hurdles

According to a Bloomberg report, Nasdaq, the exchange operator, has announced that it is halting the launch of its crypto custodian business in the United States due to a shifting business and regulatory environment. 

Nasdaq’s Crypto Plans On Ice

The announcement comes as a surprise as the company previously announced plans to offer custody services for Bitcoin and Ether for institutional investors. The exchange operator had planned to launch the service by the end of the second quarter but now says it will no longer pursue a license related to the business.

Nasdaq’s decision to halt its digital-asset custodian business is a reflection of the rapidly evolving regulatory environment surrounding crypto. The company cited the changing business and regulatory environment as the reason for its decision, indicating that it wants to ensure that it is well-positioned to navigate this complex landscape.

One of the biggest regulatory concerns surrounding crypto is the potential for market manipulation.  The Securities and Exchange Commission (SEC) has previously expressed concerns about the lack of oversight and regulation in the crypto market and has rejected several Spot Bitcoin ETF applications over fears of market manipulation. 

Despite the setback, Nasdaq’s CEO, Adena Friedman, remains optimistic about the future of the crypto industry. She emphasized that the company will continue to build out its technological capability to handle crypto assets and that it remains committed to supporting the growth and evolution of the digital asset ecosystem.

Adena Friedman added:

More broadly, we remain committed to supporting the evolution of the digital assets ecosystem in a variety of ways, among them, through our ongoing engagement with regulators, the delivery of comprehensive technology solutions across the trade life cycle, and through our partnerships with potential ETF issuers to support tradable exchange listed products

While Nasdaq’s decision may not have a direct impact on the approval of Spot Bitcoin Exchange-Traded Fund (ETF) applications by the SEC, it could have broader implications for the adoption of crypto in the financial industry.

If regulatory concerns continue to be a barrier to entry for established financial institutions, it could slow down their entry into the crypto market and limit the options available to investors.

This could potentially make the SEC more cautious in its approach to approving Spot Bitcoin ETFs, as it seeks to ensure that investors are adequately protected and that the market is not vulnerable to manipulation.

However, it is important to note that Nasdaq has been supporting the growth and evolution of the crypto ecosystem in other ways, including partnerships with potential ETF issuers, such as BlackRock Inc. Nasdaq recently partnered with BlackRock to apply for a Spot ETF that invests directly in Bitcoin.

Overall, Nasdaq’s decision to pause its plans for a digital-asset custody business is a reflection of the rapidly evolving regulatory environment surrounding crypto. 

While this decision may have some short-term implications for the adoption of crypto in the financial industry, it is important to remember that the crypto market is still largely driven by market demand and innovation, and many other factors could impact its growth and adoption.

Featured image from Unsplash, chart from TradingView.com