The US technology exchange Nasdaq is plunging into the crypto market. She starts a specialized subsidiary that focuses on institutional investors.
The new Nasdaq Digital Assets unit will offer custody services for cryptocurrencies, including bitcoin and ether. They still have to be approved by the regulator.
Nasdaq is taking the gauntlet against companies like Coinbase, Fidelity Digital Assets and Gemini owned by the Winklevoss twins. Nasdaq hired a Gemini executive, Ira Auerbach, to lead the project. He gained experience at Gemini with institutional clients active in crypto.
A small number of financial firms, including BNY Mellon and State Street, also offer crypto custody to institutions, although a recent accounting directive from the financial watchdog Securities and Exchange Commission (SEC) has made holding crypto on behalf of clients more capital-intensive.
The crypto markets are in full view of the regulators. Nasdaq therefore emphasized that it was investing extra in technology that is used against money laundering, fraud and market abuse.
We believe this next wave of revolution will be driven by mass institutional adoption.
The interest of major players in cryptocurrencies is striking, as the sector has entered a winter phase due to rising interest rates and serious incidents such as the implosion of the so-called stablecoin terraUSD. Bitcoin, the leading cryptocurrency, has fallen nearly 60 percent this year. Ether lost more than 60 percent, although the underlying blockchain Ethereum just did a major upgrade, making it much more energy-efficient.
Some of the biggest players have had to lay off thousands of employees in an effort to cut costs. Companies such as Celsius Network and Voyager Digital went bankrupt.
Remarkably, major financial players on Wall Street are taking positions in the sector right now. BlackRock, the world’s largest asset manager, has partnered with crypto exchange Coinbase Global to make trading crypto easier for large investors. Shortly afterwards, it launched its first investment product in bitcoin.
EDX Markets is a new exchange supported by financial services companies such as Charles Schwab, Fidelity Digital Assets, Citadel Securities and Virtu Financial. They will start trading some crypto coins this year.
Custody services are fundamental.
“We believe this next wave of the revolution will be driven by mass institutional adoption,” Nasdaq’s Auerbach said in an interview with Bloomberg news agency.
“Custody services are fundamental,” Nasdaq Vice President Tal Cohen said. They allow the development of other services for the execution of transactions and the provision of liquidity. While Nasdaq has no immediate plans for its own crypto exchange, it will assess the opportunity based on regulations and the competitive landscape, Cohen said.
Nasdaq already provides software to crypto players, including monitoring and trading tools. This fits in with the company’s diversification strategy.
Nasdaq has been cautious with crypto so far because there are still a lot of questions about the regulations. But regulation can also offer opportunities. “We know how to operate and innovate under regulatory regimes,” said Cohen.