Nasdaq halts digital asset custody plans due to regulatory concerns

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Nasdaq has abandoned its plans to offer digital asset custody services due to shifting regulatory concerns, CEO Adena Friedman recently confirmed.

Nasdaq planned to launch the service in the second quarter of 2023 and had applied for licenses from state and federal regulators. This included an application for a limited-purpose trust company charter from the New York Department of Financial Services (NYDFS) which it expected to receive by the end of June.

The tech-focused stock exchange is shelving these plans, saying it’s not the right time to dive into digital assets.

“Considering the shifting business and regulatory environment in the U.S., we’ve made the decision to halt our launch of the U.S. digital assets custodian business and our related efforts to pursue a relevant license,” Friedman stated during a recent earnings call.

“We like to operate in environments that have a pretty well-known regulatory underpinning. That’s just where we’re comfortable.”

Nasdaq’s decision comes amid increased regulatory pressure on digital asset companies by U.S. authorities. Gary Gensler’s SEC has been at the forefront, going after Coinbase (NASDAQ: COIN), Binance, and dozens more.

Gensler said last month that in his four decades in regulation, he has “never seen so much noncompliance and hype masquerading as reality as I’ve seen in this field,” and he’s committed to weeding it out.

The CFTC and state regulators have also cracked down on digital asset firms over non-compliance.

However, it’s the SEC that has had the biggest impact, says Ilan Solot, the co-chair of digital assets at Marex, a London-based financial services firm. Gensler’s crackdown is “weighing down on the industry and impacting businesses, prompting them to think twice,” he says.

Nasdaq’s decision is a big blow to the industry, adds Charley Cooper, a former chief of staff at the CFTC. He believes Nasdaq would have given the industry a lot of credibility, especially with institutional investors.

“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,” he said.

While it has halted custody plans, Nasdaq pledged to continue supporting digital assets. The exchange partnered with Blackrock and Coinbase on the latest application for the first-ever digital asset spot ETF.

“More broadly, 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 life cycle, and through our partnerships with potential ETF issuers to support tradable exchange-listed products,” Friedman stated.

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