Nasdaq Inc. became the latest mainstream financial firm to take a step back from digital assets, aborting its launch of a custodian business in the US due to the shifting business and regulatory environment.
(Bloomberg) — Nasdaq Inc. became the latest mainstream financial firm to take a step back from digital assets, aborting its launch of a custodian business in the US due to the shifting business and regulatory environment.
The exchange operator is also halting its efforts to pursue a license related to the business but will continue to build out its technology to handle crypto for clients.
“We remain committed to supporting the evolution of the digital asset ecosystem in a variety of ways,” including partnerships with potential ETF issuers, Adena Friedman, Nasdaq’s chief executive officer, said on the second-quarter earnings call on Wednesday.
Nasdaq pulled back amid a widening crackdown by regulators that aims to isolate crypto’s risks from the US financial system. Banks have been warned about their exposure to crypto businesses, and the US Securities and Exchange Commission has filed a series of lawsuits against some of the industry’s biggest firms, including Binance and Coinbase Global Inc.
Among the concerns are risks that could topple a federally insured bank, as well as the failure of some crypto platforms to separate different parts of their businesses, such as custody, market-making and trading, which could result in conflicts of interests.
“We do like to be able to operate in a pretty well-regulated environment and a well-understood regulatory framework, and right now that regulatory framework is changing,” Friedman said in a Bloomberg Television interview Wednesday. “So we decided to halt those efforts right now and really just focus in on the tech business and on the listings business,” adding that any return to the business would depend upon “what the regulatory framework looks like.”
Nasdaq has already built the products needed for the crypto custody business, Friedman said, and is “now productizing them to be able to sell to other market operators.”
Last September, Nasdaq announced plans to offer custody services for Bitcoin and Ether for institutional investors and has applied to get approval from the New York Department of Financial Services. A representative from the agency didn’t immediately respond to a request for comment on Nasdaq.
Nasdaq’s previous move toward entering that business was seen as a sign that Wall Street institutions were deepening engagement with digital assets. It had planned to launch the service by the end of the second quarter. Most recently, Nasdaq partnered with BlackRock Inc. to apply for an exchange-traded fund that invests directly in Bitcoin.
Bank of New York Mellon, which has launched a crypto custody services, said that the product has “never been the main focus for us in our digital assets journey,” CEO Robin Vince said on a media call Tuesday.
Nasdaq said its decision to halt the US custody business will have a “modest financial impact” by contributing to a decrease in its full-year expense growth guidance.
Nasdaq has been focused on diversifying its revenue sources beyond the exchange business where shares in public companies trade. It’s made investments in software, data and other offerings. The company also provides software for those in the crypto industry, including surveillance and trading tools.
–With assistance from Redd Brown and Tanaz Meghjani.
(Updates with Friedman quote from Bloomberg Television interview in sixth paragraph.)
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