Nasdaq Makes First Big Crypto Push to Lure Institutional Clients

Nasdaq Inc. is making its first major push into crypto, as the second-largest stock exchange prepares to capitalize on increasing appetite for digital currencies among big-money investors.

A new group dedicated to digital assets will initially offer custody services for Bitcoin and Ether to institutional investors, according to Tal Cohen, the company’s executive vice president and head of North American markets.

Nasdaq hired Ira Auerbach, who ran prime broker services at crypto exchange Gemini, to head up the new Nasdaq Digital Assets unit.

Wall Street’s biggest firms are deepening their involvement as institutional investor interest persists despite a downturn that cost jobs and depressed prices. BlackRock Inc. partnered with Coinbase Global Inc. to make it easier for investors to trade Bitcoin and shortly after offered its first investment product directly in the token. EDX Markets, a new exchange backed by Charles Schwab Corp., Fidelity Digital Assets, Citadel Securities and Virtu Financial among others, will start trading some tokens this year.

“We believe this next wave of the revolution is going to be driven by mass institutional adoption,” Auerbach said in an interview.

“I can think of no better place to bring that trust and brand to the market than Nasdaq.”

As a custodian of digital assets, a step which is pending approval from the New York Department of Financial Services, Nasdaq would be competing with crypto firms such as Coinbase, Anchorage Digital and BitGo. A small number of financial firms, including BNY Mellon and State Street, also provide crypto custody for institutions, although a recent Securities and Exchange Commission accounting guideline has made holding tokens on behalf of clients more capital intensive.

“Custody is foundational,” Cohen said in an interview. “Off the back of custody, we can start to develop other solutions, offer execution services, liquidity services, and think about how we support new markets.”

While Nasdaq has no immediate plans to launch a crypto exchange, it will evaluate the opportunity based on the regulatory environment and competitive landscape, Cohen said.

Nasdaq has been focused on diversifying its revenue sources beyond the exchange business where shares in public companies trade. It’s made investments in software, data and other offerings. The company also outsources its own software to crypto players, including surveillance and trading tools. It already provides matching engine technology to crypto exchanges such as Bitstamp.

Rules of the Road

Still, Nasdaq’s overall approach to the space has been more cautious because of questions around regulation, Chief Executive Officer Adena Friedman said in a May Bloomberg interview. But regulation can also provide opportunity, according to Cohen.

“We know how to operate under regulatory regimes, and we continue to innovate under the rules of the road,” Cohen said. “Embracing regulation as it comes is something we do. And institutions want us to operate under that framework.”

Nasdaq is also open to exploring partnerships and deal opportunities with crypto-native firms, though has no plans in the short-term to make an acquisition, said Auerbach, who will be senior vice president and head of digital assets, reporting to Cohen. The team is looking to build internally and hire externally, reaching 40 people by year-end, he said.

Nasdaq also expanded the technology it offers crypto companies tied to protection and anti-crime software including through the company’s Verafin and Surveillance product, which can help investigate and report instances of money laundering, fraud and manipulation for banks and trading firms.