Nasdaq halts plans for crypto custody service

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Nasdaq has halted plans to launch a cryptocurrency custody service, in the latest sign that a US regulatory crackdown is causing mainstream financial firms to hesitate before forging deeper links with the digital assets industry. 

The tech-focused US exchange operator has been among the leaders in established financial markets in trying to develop a crypto offering suitable for its institutional clients. 

On Wednesday it cited regulatory uncertainty as the reason for shelving plans to offer custody services for crypto, which had been central to the digital assets division it launched in September. 

“We like to operate in environments that have a pretty well-known regulatory underpinning,” said Adena Friedman, Nasdaq chief executive on an earnings call on Wednesday. “That’s just where we’re comfortable. The fundamental opportunity changed over the last several months, and then the regulatory overhang changed as well, and I think that just made us decide that it’s not the right time.”

In recent months US regulators — led by Gary Gensler’s Securities and Exchange Commission — have issued a blitz of enforcement actions against several crypto bellwethers, including Nasdaq-listed exchange Coinbase, and Binance, the world’s largest crypto exchange. Binance has also clashed with the Commodity Futures Trading Commission, which in March accused the exchange of illegally accessing US customers. 

This shows how the shadow of the SEC’s crackdown on crypto is weighing down on the industry and impacting businesses, prompting them to think twice

“This shows how the shadow of the SEC’s crackdown on crypto is weighing down on the industry and impacting businesses, prompting them to think twice,” said Ilan Solot, co-chair of digital assets at financial services firm Marex. 

After last year’s unprecedented crypto market crash, the safety of customer assets was thrust into the spotlight after the collapse of exchange FTX and lender Celsius left investors waiting in line at bankruptcy court. 

The Nasdaq decision “is a major setback for two reasons,” said Charley Cooper, former chief of staff at the Commodity Futures Trading Commission. “The industry needs credible custodians, and Nasdaq is a household name with the respect of regulators. If they’re throwing in the towel, imagine how difficult it will be for lesser players trying to set up custody services of their own.” 

Nasdaq planned to custody client holdings of bitcoin and ether — the two most popular cryptocurrencies — by the end of June, joining BNY Mellon and fund manager Fidelity in offering safekeeping services. 

Friedman added that the exchange’s focus for now would be helping clients with potential exchange traded funds linked to crypto assets. 

Several fund managers, including BlackRock, are currently working on winning approval for ETFs based on the spot price of bitcoin — something the SEC has previously rejected because of a lack of regulatory supervision of the underlying assets.