Nasdaq is considering crypto trading as it forays into digital assets

Nasdaq is expanding into the crypto market, a new sign that the world's largest financial institutions have not been deterred by the crash in digital asset prices.

The U.S. stock exchange operator said on Tuesday it is launching a digital asset services business that would begin custody of crypto tokens for institutional investors. The New York company, which processes billions of dollars in stock trades every day in stocks like Apple and Tesla, also said it was considering launching digital asset trading.

His move follows other big Wall Street names also launching crypto services, shaking off a tumultuous summer for the market that saw the most popular crypto tokens such as Bitcoin and Ethereum lose value and the failed Terra stablecoin project cause financial ruin for investors.

The size of the crypto market also fell from more than $3 trillion to less than $1 trillion, claiming once-prominent crypto firms like Celsius and Three Arrows Capital as victims.

Asset management group BlackRock announced the launch of a private Bitcoin spot trust 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 plans.

According to Nasdaq, digital asset custody could lay the foundation for crypto trading services in the future.

“This is progress that Nasdaq sees,” said Ira Auerbach, senior vice president of Nasdaq and the 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 fundamental."

He said market interest in blockchain technology, which underlies many digital assets, has sustained market interest despite the crash. “Distributed ledger technology is transformative for business, finance and the world,” he added.

However, the crypto asset custody market is becoming increasingly competitive. Unlike traditional assets like stocks or futures, asset owners are just as responsible for protecting the asset as they are for protecting their cash. A Nasdaq rival, Intercontinental Exchange, has failed to make headway in the market with its custody venture Bakkt.

Auerbach said Nasdaq has “absolutely unrivaled” institutional knowledge and has spoken to market participants about “pain points for institutions” operating in the crypto space. “We believe we are in a unique position and have the right to win in this area both in terms of custody and other services based on that,” he added.

Nasdaq said it would also be able to deploy its other capital markets services such as surveillance, market abuse and financial crime software widely used by traditional financial institutions. According to analytics firm Chainalysis, a record $14 billion in cryptocurrencies were used in illicit activities last year, more than double the amount in 2020.

“The problem is not going away, if anything it is getting worse,” said Valerie Bannert-Thurner, senior vice president of anti-financial crime technology at Nasdaq.