Nasdaq is expanding into the crypto market in a fresh sign that the world’s biggest financial institutions have not been deterred from the crash in digital asset prices.
The US exchanges operator said on Tuesday that it was launching a digital assets services business that would begin with custody of crypto tokens for institutional investors. The New York company, which handles billions of dollars of share deals every day in stocks such as Apple and Tesla, also said it was considering rolling out trading of digital assets.
Its push comes on the heels of other big Wall Street names also introducing crypto services, shaking off a turbulent summer for the market where the most popular crypto tokens such as bitcoin and ethereum plummeted in value, and the failed terra stablecoin project caused financial ruin for investors.
The size of the crypto market also fell from more than $3tn to less than $1tn, claiming once-prominent crypto firms such as Celsius and Three Arrows Capital as casualties.
Asset management group BlackRock announced the launch of a spot bitcoin private trust made available to institutional clients and connected its trading network to Coinbase, the crypto exchange. Fidelity also said it would allow investors to add cryptocurrencies to their portfolios in 401(k) retirement schemes.
Nasdaq said the custody of digital assets could lay the foundation for crypto trading services in the future.
“That is a progression that Nasdaq sees”, said Ira Auerbach, Nasdaq’s senior vice-president and new head of the unit, called Nasdaq Digital Assets.
Auerbach, a former executive at digital exchange Gemini, added that trading is “certainly further down the line. We believe custody is foundational.”
He said the market’s interest in the blockchain technology that underpins many digital assets had sustained the market’s interest in spite of the crash. “Distributed ledger technology is transformational for business, for finance, and for the world at large,” he added.
However, the market for custody of crypto assets is growing competitive. Unlike traditional assets such as shares or futures, the owners of the assets are as responsible for safeguarding the asset, much as they would be for protecting their cash. One Nasdaq rival, Intercontinental Exchange, failed to make headway in the market with its custody venture Bakkt.
Auerbach said Nasdaq had “absolutely unrivalled” institutional knowledge, and had talked to market participants about “pain points for institutions” involved in the crypto space. “We think we are in a unique position and have a right to win in that space both on custody and eventually building on top of that for other services”, he added.
Nasdaq said it would also be able to employ its other capital market services, such as surveillance, market abuse and financial crime software, which is widely used by traditional financial institutions. Last year was a record $14bn worth of cryptocurrencies used for illicit activity, more than double the figures from 2020, according to analytics firm Chainalysis.
“The problem is not going away, if anything it is getting bigger”, said Valerie Bannert-Thurner, Nasdaq’s senior vice-president of anti-financial crime technology.