Nasdaq Abandons Plan for Crypto Custody Service Because of US Regulatory Uncertainty

Updated: 20 July 2023

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Nasdaq said it will abandon plans for a crypto custodial service because of the regulatory uncertainty that envelopes the digital assets industry in the US.

Nasdaq CEO Adena Friedman announced the decision during the company’s second-quarter earnings call yesterday, indicating that the US’s most important exchange for technology listings may revisit the decision if there’s more clarity over regulation of the crypto sector in future.

“We like to operate in environments that have a pretty well-known regulatory underpinning,” she said. “That’s just where we’re comfortable. The fundamental business opportunity changed over the last several months and then the regulatory overlay and kind of overhang changed as well. And I think that just made us decide that it’s not the right time for us to enter that business.”

Nasdaq Decision Follows SEC Enforcement Blitz

Nasdaq’s decision comes amid growing criticism in the US of the SEC’s strategy of regulation by enforcement. Two prominent Republican politicians yesterday added to calls for the regulator to focus instead on providing the industry with greater clarity by building a comprehensive regulatory framework.

The SEC, headed by Gary Gensler, has filed a flurry of enforcement actions in recent months against crypto titans that include the Nasdaq-listed exchange Coinbase and Binance, the world’s largest cryptocurrency exchange. The critics say the SEC’s heavy-handed approach is stifling innovation in the industry in the US and risks major crypto companies and jobs decamping to more crypto-friendly jurisdictions such as Singapore, Switzerland and Portugal.

Interesting move from Nasdaq after the much hyped 'institutional effort' to get into crypto…

Where there's smoke there's fire?

What I mean by that is maybe the odds of spot ETF being approved aren't as high as originally thought.

Not an attempt to FUD, just deciphering an… pic.twitter.com/EpSYQOwrrs

— ted (@tedtalksmacro) July 19, 2023

Nasdaq May Revisit Decision

Friedman though held out hope that Nasdaq may revisit its decision in future, noting that the US regulatory environment is evolving quickly.

Last week a US judge gave a landmark partial victory to Ripple Labs., Inc. after the SEC took action legal against it, arguing that Ripple’s payments token was a security.

But the judge ruled that the token, XRP, is not a security when sold to the public via exchanges even though is when sold to institutional investors. Crypto assets surged on the ruling.

“The regulatory environment is fast changing,” Friedman said. “It’s at least trying to evolve into something that’s understandable. Let’s see how it does over the next several months and so I think — and maybe years. Will we ever enter that business? It’s possible, but we’d likely do it in connection with other things we might want to try to do in the digital asset space.”

Nasdaq Says Still Committed to Digital Assets

The exchange first announced in September 2022 that it is putting together the infrastructure and legal authorization required for a cryptocurrency custody service. The service launch was planned for the second quarter of this year.

The US exchange operator has always been known for its tech focus, spearheading the creation of crypto products appropriate for its institutional clientele.

This is a bummer! When will congress act to provide clarity for the market and stop corrupt regulator Gary Gensler from causing confusion in the market.

Nasdaq Halts Plan for Crypto Custody Service Due to U.S. Regulatory Conditions https://t.co/ot3kHE6OTj

— Tony Edward (Thinking Crypto Podcast) (@ThinkingCrypto1) July 19, 2023

“We remain committed to supporting the evolution of the digital asset ecosystem in a variety of ways, among them through our ongoing engagement with regulators, the delivery of comprehensive technology solutions across the trade lifecycle, and through our partnerships with potential ETF issuers to support tradable exchange-listed products,” Friedman said.

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