In September 2022, Nasdaq announced a new Nasdaq Digital Assets division that would provide a custody solution, subject to regulatory approval. According to reports, Nasdaq has decided to abandon its push into crypto custody to focus on other initiatives – like its move into Regtech with the acquisition of Adenza.
Nasdaq is already a sizeable Fintech providing a portfolio of digital services to a growing number of clients. While crypto may be a growing market, the regulatory environment remains opaque.
Scott Purcell, CEO of Fortress and founder of Prime Trust, distributed an email sharing his thoughts on Nasdaq’s decision. Fortress Trust, a custody provider, may benefit from the decision of Nasdaq not to compete in the sector. Purcell said that Nasdaq backed away from custody not from a lack of demand but at least partly from internal bureaucracy and corporate inertia that makes it impractical for the organization to innovate and launch new services.
Purcell said he would have been surprised if the decision was due to Nasdaq’s inability to gain regulatory approval but said it may have something to do with the recent Ripple XRP court decision
“My thoughts are this is most likely related to the court decision on Ripple (XRP). The decision states that although the original issuance of XRP was a security, the secondary trading of XRP is not a security. This seriously undermines Nasdaq’s value-prop as a securities exchange. Hence the “regulatory concerns” being a judgement that is not aligned with the business of the exchange, causing them to recoil.”
Purcell said the firms operating in the custody sector, including his own, will now become more valuable. Especially if they get acquired by a marketplace, bank, or another crypto industry participant.
“So Nasdaq shelving their crypto custody plans, probably because of the decision that the secondary trading of crypto is NOT a security, doesn’t affect the industry in any negative way. But it is good for the licensed incumbents who are already chartered and purpose-built to serve the industry,” stated Purcell.
