The landscape of cryptocurrency regulation and institutional adoption in the United States is undergoing a pivotal transformation. While one major financial player steps back, others are charging forward—highlighting both the challenges and opportunities shaping the future of digital assets.
Nasdaq, the U.S. tech-focused stock exchange renowned for listing innovative companies, has officially announced it will no longer pursue its planned cryptocurrency custody services. In a recent earnings call, CEO Adena Friedman cited an evolving and uncertain regulatory environment as the primary reason behind the decision.
This strategic retreat marks a notable shift for Nasdaq, which had previously signaled strong interest in expanding into the digital asset ecosystem. However, despite stepping away from direct custody operations, Friedman emphasized that the company remains committed to supporting the crypto industry through alternative avenues—particularly by collaborating with potential issuers of bitcoin spot exchange-traded funds (ETFs).
Why Nasdaq Backed Out of Crypto Custody
While Nasdaq’s exit from crypto custody may not single-handedly dampen market sentiment, it underscores a growing concern among traditional financial institutions: regulatory overreach and compliance complexity.
A key factor likely influencing this decision is SAB 121 (Staff Accounting Bulletin 121), a controversial regulatory guidance introduced by the U.S. Securities and Exchange Commission (SEC) in March 2022. SAB 121 requires firms offering digital asset custody services to record the assets they hold on behalf of clients as liabilities on their balance sheets.
To illustrate, if a bank or financial institution holds $1 billion worth of bitcoin for customers, it must classify that amount as a liability—forcing the firm to set aside capital reserves to offset the risk. This creates significant balance sheet pressure and increases operational costs, discouraging many established players from entering the space.
Matt Walsh, a partner at crypto venture firm Castleisland Ventures, elaborated on this issue via social media, stating that SAB 121 has become a major deterrent for U.S.-based institutions considering crypto custody. “Because of SAB 121, banks providing Bitcoin custody must treat customer Bitcoin as their own asset—triggering capital costs,” Walsh explained.
This regulatory burden particularly affects large financial institutions like JPMorgan Chase, Goldman Sachs, and BNY Mellon, which already operate trust and custody divisions but may now hesitate to expand into digital assets due to capital efficiency concerns.
Bitcoin Spot ETFs Move Closer to Approval
While Nasdaq retreats from direct involvement in custody, it continues to play a critical role in another high-stakes crypto development: the push for bitcoin spot ETF approvals.
The SEC has officially opened its review process for several high-profile bitcoin spot ETF applications. Notably, five proposals filed with the Chicago Board Options Exchange (Cboe) are now under formal evaluation:
- Wise Origin Bitcoin Trust
- WisdomTree Bitcoin Trust
- VanEck Bitcoin Trust
- Invesco Galaxy Bitcoin ETF
- ARK 21Shares Bitcoin ETF
These filings represent some of the most credible efforts yet to bring a physically backed bitcoin ETF to U.S. investors. Each is backed by well-established asset managers with deep experience in traditional finance and growing expertise in digital assets.
Additionally, BlackRock’s iShares Bitcoin Trust has entered the public comment phase—an early but essential step in the SEC’s regulatory process. Once the filing is published in the Federal Register, the formal review clock begins.
This wave of applications signals growing confidence among institutional players that regulatory approval may finally be within reach—especially after the SEC approved several bitcoin futures ETFs in recent years.
The Race for Market Dominance
With so many contenders vying for approval, competition is fierce. According to Matt Hougan, Chief Investment Officer at Bitwise, while numerous firms are seeking approval, only a few are likely to succeed.
“Bitcoin spot ETFs operate in a winner-takes-most market,” Hougan noted. “The first mover advantage is enormous—early approvals will capture the majority of assets under management.”
This dynamic incentivizes speed, compliance readiness, and strong partnerships with regulated exchanges like Nasdaq—even if those exchanges aren’t directly offering custody services.
👉 See how early-mover advantages are shaping the next phase of crypto investment products.
Institutional Confidence in Crypto Continues to Grow
Despite regulatory headwinds, the broader trend points toward increasing institutional adoption. The entry of financial giants into the bitcoin ETF race reflects a long-term belief in the transformative potential of blockchain technology and decentralized finance.
According to a report by OKX Insights, the rise of crypto and Web3 represents a new paradigm capable of addressing inefficiencies in traditional finance and breaking the data monopolies of Web2 platforms. By launching bitcoin ETFs, these institutions are not just offering new investment vehicles—they’re securing strategic positions in an emerging digital economy.
Moreover, institutional involvement brings enhanced credibility, improved liquidity, and greater market stability—all crucial elements for mainstream adoption.
FAQ: Understanding the Current State of Bitcoin ETFs and Regulation
Q: Why did Nasdaq abandon its crypto custody plans?
A: Nasdaq cited an uncertain regulatory environment, particularly concerns around SAB 121, which requires custodians to record client-held digital assets as liabilities on their balance sheets—increasing capital requirements and operational risks.
Q: What is SAB 121 and why does it matter?
A: SAB 121 is an SEC accounting guidance that treats custodied digital assets as liabilities. This forces financial institutions to hold additional capital reserves, making crypto custody less economically viable for large banks and trust companies.
Q: Are any bitcoin spot ETFs approved in the U.S.?
A: As of now, no bitcoin spot ETF has been approved. However, multiple applications are under active review by the SEC, with decisions expected in the coming months.
Q: Who are the main players applying for bitcoin spot ETFs?
A: Key applicants include BlackRock (iShares), Fidelity, VanEck, WisdomTree, ARK Invest/21Shares, Invesco Galaxy, and Bitwise—all leveraging major exchanges like Cboe and Nasdaq for listing purposes.
Q: How could a bitcoin spot ETF impact the market?
A: Approval would likely increase institutional investment, improve market liquidity, enhance price discovery, and accelerate regulatory clarity—potentially driving sustained upward momentum in bitcoin’s value.
Q: Does Nasdaq still support crypto despite exiting custody?
A: Yes. While exiting direct custody services, Nasdaq continues to support crypto innovation by partnering with ETF issuers and providing listing infrastructure for regulated digital asset products.
👉 Stay ahead of the next major shift in institutional crypto adoption.
Conclusion
The dual narrative of retreat and advancement defines today’s U.S. crypto landscape. While Nasdaq steps back from direct custody due to regulatory constraints, its ongoing collaboration on bitcoin ETFs illustrates that institutional interest remains strong.
SAB 121 may be slowing down traditional finance’s entry into crypto custody—but it hasn’t stopped Wall Street from finding other ways to participate. The surge in bitcoin spot ETF applications shows that major financial players are positioning themselves for long-term growth in digital assets.
If even one of these ETFs gains approval, it could catalyze a new era of adoption—bringing greater liquidity, transparency, and legitimacy to the crypto market. In the meantime, every development—from policy shifts to corporate strategy changes—brings us closer to a more integrated and regulated digital financial system.
The path forward isn’t without obstacles, but momentum is building. And with each step, the vision of crypto as a mainstream asset class becomes more tangible.