This is what Nasdaq launching its crypto custody services in Q2 2023 means for Bitcoin and Ethereum

Nasdaq will be the newest major financial firm to enter the crypto space to try its hand at the market. While most investors and analysts look at it as a positive since it represents the involvement of institutional investors, some see it as a threat to what cryptocurrencies like Bitcoin and Ethereum stand for.

Nasdaq takes on crypto

Nasdaq announced that the stock exchange company would be launching its digital asset custodial services by the second quarter of this year.

The firm is pushing through the necessary regulatory approvals, applying to the New York Department of Financial Services for a limited-purpose trust company charter. This charter would serve as the overseer of the custody services business.

With this, Nasdaq would be joining the likes of Fidelity and BNY Mellon, which have been offering custodial services for cryptocurrencies for a while now. The recent rather violent conditions of the crypto market have concerned investors and regulators alike, and the arrival of major financial institutions for safekeeping could reinstate that confidence.

With firms like Nasdaq serving as middlemen to safekeep investors' crypto assets they could be held accountable in the event that something goes wrong in the crypto market.

The collapse of FTX and Terra, in addition to multiple other companies going bankrupt over the last year, could be the leading cause of investors potentially turning to traditional financial companies.

But at the same time, this would take away a critical aspect of what crypto was born for. The crypto space has been building itself to stand as an independent market over the last couple of years. To further strengthen the trustlessness (decentralization) that comes with the crypto market, self-custodial wallets were developed.

However, due to the crypto market still being in its infancy compared to the financial markets, most investors would turn to traditional financial firms during crisis events.

This is also because the crypto market lacks proper regulation and an overseeing body that could prevent situations like FTX and maintain investors' confidence to the point where people would not depend on firms like Nasdaq to safekeep their investments.

SEC issues alert for investors

Earlier this week, the Securities and Exchange Commission (SEC) took on the crypto market and advised investors to practice caution before entering the space.

The regulatory body issued a bulletin saying that companies offering digital asset investments or services may not be complying with the existing securities laws. 

The commission even warned investors against having absolute faith in Proof of Reserves reports as they do not assure whether or not entities hold sufficient assets as they claim. Alerts as such would certainly push people against investing in the crypto space, and even if they do, they might turn to Nasdaq and other companies' custodial services to protect their investment.