Prominent American stock exchange Nasdaq has scrapped plans to launch a crypto asset custodial service this year due to a “constantly shifting business and regulatory environment” in the United States.
The announcement was made by CEO Adena Friedman during the firm’s Q2 earnings call on Wednesday, 19 July.
Nasdaq Postpones Launch Of Crypto Custodial Service
Nasdaq initially revealed plans to venture into the crypto sector last September with the launch of Nasdaq Digital Assets, its crypto arm that was supposed to develop a digital asset custody solution.
The exchange operator was waiting for license approval from the New York Department of Financial Services (NYDFS) to officially launch the service in the second quarter of 2023.
Nasdaq had sensed a business opportunity in the ever-growing crypto market and was poised to become a trusted custodian for its clients’ digital assets. But the astronomical collapse of FTX leads to the U.S. Securities and Exchange Commission (SEC) taking stringent measures to crack down on crypto service providers in the country and frame regulations to bring them under the agency’s control.
The regulatory action led to a massive shift in the dynamic of the crypto industry in the U.S. as a number of digital asset firms were forced to pack their bags and leave, prompting Nasdaq to reassess their plans.
According to Friedman, a key factor to put its crypto custodial service on hold was a lack of clarity on regulations surrounding digital assets. In her statements, the Nasdaq chief expressed the need for a deeper understanding of the regulatory framework surrounding cryptocurrencies and related services. The global securities marketplace will now analyze how U.S. regulations evolve with time and then make an informed decision.
Friedman also noted that Nasdaq will prioritize investor protection and will be committed to ensuring regulatory compliance.
Nasdaq Promised Investors It Will Maintain Crypto Partnerships
Many investors were worried whether Nasdaq’s decision to suspend crypto custodial service would affect other crypto avenues the company is involved with, such as the creation of cryptocurrency exchange-traded funds (ETFs) and index products.
However, Friedman assured that Nasdaq will remain committed to building and delivering digital asset software solutions through its partnerships with ETF issuers to support the trading of crypto assets listed on the stock exchange.
Coinbase, the largest cryptocurrency trading platform in the United States, is listed on Nasdaq. Meanwhile, last month Nasdaq refiled its application with the SEC to list a Bitcoin (BTC) spot ETF by BlackRock. The proposal was submitted after the securities regulator flagged its previous application over concerns of being “unclear” and “incomplete”.
According to the latest SEC filing, Coinbase signed a surveillance-support agreement (SSA) with BlackRock to support the asset manager’s crypto ETF and become a custodian for its Bitcoin holdings.
In March, Bloomberg reported that Nasdaq had applied for a limited-purpose trust company charter from the New York Department of Financial Services – which oversees the exchange’s business – that would allow Nasdaq Digital Assets to custody of customers’ Bitcoin and Ether (ETH).
If Nasdaq had gone ahead with its plans, it would have joined BNY Mellon and Fidelity in becoming one of the big financial institutions in the U.S. to offer crypto custodial services.
In October 2022, BNY Mellon became the first large bank in the country to provide a digital custody platform for institutional clients to store their Bitcoin and Ether. America’s oldest bank with over $48 trillion in assets under management formed an enterprise Digital Assets Unit in 2021 to build and develop a software solution to bridge the divide between digital and traditional asset custody.
The SEC is currently considering two spot Bitcoin ETF proposals under the Nasdaq Rule 5711 – the iShares Bitcoin Trust ETF by BlackRock and the Valkyrie Bitcoin Fund by Valkyrie Investments – as per entries in the agency’s official docket on July 17.
Will The U.S. Lose Its Crypto Dominance?
There is a growing worry among investors about whether the U.S. could lose its crypto edge as regulators continue to crack down on the industry while other countries have started to embrace financial technology.
Just last week, Societe Generale, France’s second largest and one of Europe’s oldest banks received a Digital Asset Service Provider (DASP) license from the country’s financial regulator – Autorite des marches financiers (AMF) – to offer crypto services, including custody of digital assets, to institutional clients.