Nasdaq, the prominent stock market operator, has decided to temporarily suspend its plans to launch a crypto custody service due to the intricate regulatory landscape in the United States. The company had previously announced in March that it was developing the necessary infrastructure and seeking regulatory approval for the service.

However, due to the evolving business and regulatory environment in the US, Nasdaq’s CEO, Adena Friedman, announced during an earnings call that the plans for the crypto custody service, initially set to go live in the second quarter of this year, would be put on hold. In September 2022, Nasdaq had begun the process of setting up the infrastructure and obtaining regulatory approval for the service by applying to the New York Department of Financial Services for a limited-purpose trust company to oversee the custody business.

Despite the suspension of the custody service plans, Nasdaq intends to continue supporting the digital asset industry in various ways. This includes forming partnerships with potential ETF issuers and providing technology for crypto custody. The decision to halt the plans is a setback for the institutional adoption of cryptocurrencies in the US, as regulators seem to be targeting crypto firms and related services. This has sparked concerns about a potential migration of these firms to jurisdictions with more favorable crypto regulations.

In April 2022, the US Securities and Exchange Commission issued an accounting directive, known as Staff Accounting Bulletin No. 121, advising companies to record obligations related to customers’ digital assets as liabilities on their balance sheets. This directive has set a high bar for publicly traded companies to get involved in crypto custody.

The regulatory uncertainty in the US has led to discussions among crypto companies about the possibility of relocating overseas. Ripple CEO Brad Garlinghouse recently revealed that many crypto companies have already begun to move outside the United States. For instance, Coinbase, the largest US-based cryptocurrency exchange, is considering launching a trading desk abroad.

In conclusion, the regulatory complexities in the US have led to Nasdaq suspending its plans for a crypto custody service. However, the company remains committed to supporting the digital asset industry through other means. The situation underscores the need for clear and supportive regulatory frameworks to foster the growth and adoption of cryptocurrencies.