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Nasdaq Abandons Crypto Custody Service Amid U.S. Regulatory Challenges

Nasdaq, the renowned financial services company, has decided to cancel its cryptocurrency custody service project in response to the evolving regulatory challenges in the industry. The company’s CEO, Adena Friedman, made the announcement during an earnings call on Wednesday.

Friedman explained that the decision to abandon the project was influenced by the dynamic changes occurring in both the business and regulatory landscapes within the United States. In light of these developments, Nasdaq has chosen to halt the launch of its U.S. digital assets custodian business and has decided not to pursue the necessary license for such operations.

The regulatory uncertainty surrounding cryptocurrencies and the potential implications on custody services have led Nasdaq to reevaluate its plans in this sector, ultimately resulting in the project’s discontinuation.

Despite the considerable effort made by Nasdaq to establish the required infrastructure and obtain regulatory approval for their cryptocurrency custody service, the company has ultimately decided to discontinue the project. This decision was communicated by CEO Adena Friedman during an earnings call.

Nasdaq had taken significant steps to make the custody service a reality, including applying for a limited-purpose trust company license from the New York Department of Financial Services (NYDFS) to oversee the custody business. However, due to the changing regulatory landscape and other business considerations, Nasdaq has chosen not to pursue this avenue any further.

Although the cryptocurrency custody service has been halted, Friedman emphasized that Nasdaq remains committed to supporting the digital asset ecosystem in other ways. The company will continue engaging with crypto-related businesses and exploring potential partnerships with exchange-traded fund (ETF) issuers. Nasdaq will also focus on delivering comprehensive technology solutions across various aspects of the trade life cycle to further support the evolving digital asset space.

While the custody service has been discontinued, Nasdaq’s dedication to the development and growth of the digital asset industry persists, albeit through different channels and strategic partnerships.

Nasdaq’s Crypto Custody Was Much-Anticipated

Nasdaq had previously announced its intention to launch a highly-anticipated cryptocurrency custody service by the end of the second quarter. The goal was to cater to the increasing demand and interest from institutional investors in the cryptocurrency market.

Custody services are of great significance to institutional investors as they provide a secure way to navigate the crypto asset class. These services offer secure storage solutions, protecting digital assets from potential theft or loss, which is crucial for institutions looking to participate in the crypto space with confidence.

Initially, the custody service was planned to support custody for major cryptocurrencies like Bitcoin and Ether. Over time, Nasdaq aimed to expand its offerings to include additional services such as execution and liquidity services.

Nasdaq’s decision to abandon its crypto custody plans highlights the challenges and complexities that financial institutions encounter when attempting to enter the cryptocurrency industry. The rapidly evolving regulatory landscape, along with various uncertainties surrounding cryptocurrencies, can pose significant hurdles for traditional financial firms seeking to establish themselves in this emerging market. As a result, the company has chosen not to proceed with its crypto custody service at this time.

Indeed, the increased scrutiny of crypto firms by US regulatory agencies, particularly the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), has added significant challenges for companies operating in the cryptocurrency space.

The SEC’s recent lawsuits against major crypto exchanges like Binance and Coinbase, as well as enforcement actions against other platforms like Kraken, Bittrex, and Nexo, have sent shockwaves through the industry. This heightened regulatory action has created uncertainty and concerns among market participants, including investors, businesses, and lawmakers.

Congressman Ritchie Torres voiced his dissatisfaction with the SEC’s approach in handling the cryptocurrency industry. He highlighted the agency’s failure to provide clear guidance to the sector, resulting in mixed messages and contradicting statements. The absence of well-defined regulations and guidance can make it difficult for crypto firms to operate with clarity and confidence.

The evolving regulatory landscape and the lack of clear directives have become significant obstacles for financial institutions and businesses interested in venturing into the cryptocurrency market. This complex regulatory environment has played a role in Nasdaq’s decision to halt its crypto custody service and is likely influencing the strategies of other companies in the industry as well.

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Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

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