Nasdaq Surveillance Technology Becoming the New Gold Standard for Cryptocurrency Exchanges
Nasdaq’s influence on the cryptocurrency market appears to be growing by the day. In addition to investing in crypto startups and building a new bitcoin futures market, the world’s second-largest stock exchange is offering its coveted surveillance technology to virtual currency exchanges.
Crypto Exchanges Pursue Nasdaq Surveillance Technology
As Forbes reported on Wednesday, seven cryptocurrency exchanges have gained access to Nasdaq’s coveted surveillance technology – a comprehensive system of due-diligence that protects users from fraud and manipulation. It’s the same system Nasdaq itself employs to ensure trading volumes aren’t manipulated.
However, crypto exchanges need more than just money to pass Nasdaq’s rigorous screening criteria. Being well capitalized, technically capable and, as Forbes describes, “morally inclined” are necessary prerequisites for gaining access to the technology.
Of the seven crypto exchanges using Nasdaq’s infrastructure, only two have been publicized: Gemini and SBI Virtual Currency.
Tony Sio, an executive within Nasdaq’s surveillance team, said cryptocurrency exchanges required more vetting than traditional clients given the nascent state of the market.
“Historically, we don’t do such a large vetting process for our clients because they are much more well-known,” Sio said, as quoted by Forbes. “But as we started working with less well-known names, startups, then we realized we needed to do this check process.”
In vetting exchanges, Nasdaq is also evaluating the reputation of crypto assets and how they are being used. The management team of each exchange is also being scrutinized for their technical and financial prowess.
Crypto Arms Race
Wall Street’s biggest exchanges are competing for early dominance of the cryptocurrency market. This began in 2017 with the launch of bitcoin futures contracts by CBOE and CME Group. While initial uptake was slow, futures trading increased substantially in 2018 and may have actually helped stabilize the bitcoin spot market.
In the next few months, Nasdaq and Intercontinental Exchange (ICE) are also planning to unveil new futures markets dedicated to bitcoin. ICE’s Bakkt operation was scheduled to go live by the end of January but has been pushed back due to the partial government shutdown. As Hacked reported last month, ICE raised $182.5 million in support of the new platform.
Nasdaq has been working with the U.S. Commodity Futures Trading Commission (CFTC) to finalize a new bitcoin futures product that could be launched sometime in the first quarter. One way that Nasdaq plans to differentiate its product from the competition is through a unique pricing mechanism administered through VanEck Associates Group. Basically, VanEck will compile bitcoin’s spot price from multiple exchanges to be used in the futures contract.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.