This morning, Nasdaq announced it is shelving its plan to offer crypto custody – why?
- Is it because institutional clients are pulling back from crypto? No, quite the opposite. Institutions continue to have strong interest in Bitcoin and other cryptocurrencies.
- Is it due to internal bureaucracy and corporate inertia that makes it impractical for the organization to innovate and launch new services? Sure, probably some of that.
- Is it because New York denied them a state trust charter, which was a key part of their program to be a Qualified Custodian? Although states and the OCC have pretty much flat out stopped granting new trust charters, especially for anything crypto-related, I’ve got to believe an exception would have been made for Nasdaq, so that’s not likely the case.
- 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.
So what happens now?
Not much changes in the industry. There are only a handful of trust companies conducting crypto-related business and who have API technology for customers. These include…
- BitGo
- Fortress Trust
- Paxos
- Anchorage
- NYDIG
These firms all become more valuable. And if (when) they get acquired by crypto exchanges, NFT marketplaces, banks, and other entities who want/need to own a qualified custodian, and if those acquirers offboard customers (as happened when Paypal bought Curv, leaving Fireblocks as the primary MPC wallet solution), then it will get very interesting as whoever is the last independent trust company standing will enjoy incredible market opportunity.
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.
