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NASDAQ Wary of U.S Crypto Regulators Halting Crypto Custody But Still in on Bitcoin ETF

Published July 20, 2023 4:50 PM
Omar Elorfaly
Published July 20, 2023 4:50 PM

Key Takeaways

  • “We like to operate in environments that have a pretty well-known regulatory underpinning,” says NASDAQ
  • NASDAQ is betting on major financial institutions for crypto’s future
  • Crypto’s potential TradFi future

NASDAQ, the world’s second-largest stock exchange, has announced  that it will be suspending its plans to develop a crypto custody service. The New York-based stock exchange claims that the recent crackdown on the crypto industry by the US Securities and Exchange Commission (SEC) has created regulatory uncertainty in which NASDAQ prefers not to establish a crypto custody service.

Alternatively, NASDAQ is filing for ETFs for major financial institutions that aim to “democratize crypto”, such as BlackRock and Valkyrie.

Crypto Is Too Uncertain For NASDAQ

“We like to operate in environments that have a pretty well-known regulatory underpinning,” reported Adena Friedman, Nasdaq chief executive, on an earnings call on Wednesday, July 19. “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 the meantime, NASDAQ is helping BlackRock and Co. secure Bitcoin spot ETFs, as the SEC previously rejected previous attempts, citing that applications lacked sufficient security and anti-manipulation measures. 

Ironically, the majority of high-profile spot ETF applications include Coinbase, a US-based exchange, as their surveillance partner. Coinbase is currently dealing with a lawsuit filed by the SEC concerning the alleged trade of “unregistered securities”.

The SEC, as well as the Commodity Futures Trading Commission, are also suing Binance, the world’s biggest crypto exchange for a number of allegations, including wash trading and commingling customer funds.

Moreover, as the SEC concedes a defeat to Ripple over the trade of XRP, the SEC, led by Chair Gary Gensler, is looking for more financing to carry on its war against the crypto industry.

NASDAQ’s Exit Is Bad News

Charley Cooper, former CFTC chief of staff, sees NASDAQ’s decision to halt its crypto custody plans as “a major setback for two reasons.” Cooper states that the crypto industry “needs credible custodians, and Nasdaq is a household name with 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.”

As stakeholders in the crypto market have already been victimized by major corporate collapses such as FTX, Celsius, and Terra, Cooper sees that NASDAQ could’ve provided the required reassurance to investors to stay in the market. 

However, the entrance of major asset managers, namely BlackRock, is somewhat reviving stakeholders’ faith in the industry as it prompted adjacent financial institutions to follow suit.

Moreover, BlackRock’s application directly influenced the market, which can be seen in the market’s immediate reaction to the company’s announcement through a Bitcoin price surge of over $4,000. On top of that, BlackRock’s application has been finally accepted by the SEC for review, surely a positive sign of the SEC untightening its grip on the market. 

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