In a surprising move, Nasdaq, the leading tech-centric US stock exchange, has decided to scrap its plans to introduce a cryptocurrency custody service. This move, anticipated to take place in the second quarter of this year, was set to be overseen as a special purpose trust in New York. However, the recent shift has raised eyebrows and stirred the simmering pot of optimism within the crypto industry.
Last month, a hint of renewed faith sprouted with a proposal from the planet’s largest asset manager, BlackRock, concerning a spot bitcoin exchange-traded fund (ETF). This spark ignited a flare of hope within a sector that weathered a series of blows from regulatory bodies and a torrent of negative news for the last 16 months or so. BlackRock’s proposal hinted at a deep institutional interest in Bitcoin and cryptocurrencies despite the sweeping crypto crackdown by U.S. authorities.
Nonetheless, Nasdaq’s decision could cast a shadow over the industry’s resurging positivity. However, the repercussions shouldn’t inflict a mortal wound, but it’s still a setback, suggesting a dismal future for a big chunk of the industry, should the regulatory status quo persist. Interestingly, Nasdaq CEO Adena Friedman attributed the withdrawal to the evolving business and regulatory environment in the United States. Despite all this, the company is still committed to its nascent unit, Nasdaq Digital Assets, and plans to continue the development and delivery of crypto software, inclusive of custodial solutions.
The unclear reasons behind Nasdaq’s withdrawal, whether it was a response to a direct influencing factor or reading future signs, begs the question; if a tech giant like Nasdaq had to back out, who else can withstand the regulatory red tape? If the Securities and Exchange Commission’s stringent custodial requirements come into play, it seems increasingly likely to witness an enforced segregation between custody services and trading.
The suggested “custody rule” to require contemporary trading and lending firms to engage “qualified custodians” has ruffled feathers and may affect full-stack crypto companies. The rule necessitates the involvement of chartered banks or trust companies, SEC-registered broker-dealers, or derivatives merchants authorized by the Commodity Futures Trading Commission. This could post hurdles in front of companies likeCoinbase who offer both trading and custody services and do not particularly agree with the said requirements.
Amid this, crypto custody stands to face heightened scrutiny which could potentially disrupt the business dynamics for anyone not offering non-custodial crypto services. Such changes, however, could offer relatively desirable outcomes than the prevailing circumstances considering how many crypto-native custodial firms are fumbling. Even so, the fact that Nasdaq found the regulatory labyrinth too intricate to navigate is cause for worry, raising more concerns for the future of cryptocurrency custody services.
Source: Coindesk
