Nasdaq Inc. (NDAQ) has chosen to withdraw its plan to launch a cryptocurrency custody service due to the challenging regulatory climate in the United States, according to its CEO, Adena Friedman. In an earnings call on Wednesday, Friedman announced that the corporation, which had previously aimed to debut its crypto service in the second quarter of this year, has paused these plans.
Nasdaq had previously revealed in September 2022 that it was in the process of developing the necessary infrastructure and regulatory approval to support its proposed crypto custody service. As part of its plan, the corporation had submitted an application to the New York Department of Financial Services (NYDFS) for a limited-purpose trust company charter that would enable it to manage the crypto custody service.
However, citing the “shifting business and regulatory environment in the U.S.,” Friedman said that the corporation had decided to reconsider its approach to the venture. Despite this setback, Nasdaq intends to maintain its engagement with the digital asset industry. It plans to explore opportunities in partnering with potential exchange-traded fund (ETF) issuers and providing technology for crypto custody, Friedman added.
The move by Nasdaq could be perceived as a setback for the institutional adoption of crypto in the U.S., where regulatory scrutiny appears to be intensifying on crypto firms and related services. There are growing concerns that the regulatory pressure may cause these firms to shift their operations to jurisdictions with more accommodating regulations.
The Securities and Exchange Commission (SEC), in particular, has set a high bar for publicly traded companies looking to get involved in the crypto custody space. In an April 2022 directive, the Staff Accounting Bulletin No. 121, the SEC advised companies handling customers’ digital assets that they would need to report these obligations as liabilities on their own balance sheets. This directive implies substantial financial implications for any publicly traded firms intending to offer crypto custody services.
Given the complex and rapidly evolving regulatory landscape surrounding cryptocurrencies, it is clear that the industry is still undergoing a period of turbulence. It remains to be seen how Nasdaq’s decision will impact other market participants and whether this will stimulate a broader discussion about the regulatory framework for digital assets in the U.S.
As we wrote this article, we received an email from Scott Purcell, previous founder of PrimeTrust and now founder and CEO of Fortress: “My thoughts are this is most likely related to the court decision on Ripple (XRP). The decision states that although the original issuance of XRP was a security, the secondary trading of XRP is not a security. This seriously undermines Nasdaq’s value-prop as a securities exchange. Hence the “regulatory concerns” being a judgement that is not aligned with the business of the exchange, causing them to recoil.”
Whatever the reasons, one thing remains true, the cryptocurrency industry is still rapidly expanding and developing.
