Earlier today, a new cryptocurrency exchange backed by firms including Citadel Securities, Fidelity Digital Assets and Charles Schwab Corp. said it has gone live, a move that could reshape the digital asset landscape amid increased U.S. scrutiny of the industry.
EDX Markets, an institutions-only exchange, announced in September 2022 that it would offer trading in four cryptocurrencies: bitcoin, ethereum, litecoin and bitcoin cash. Unlike existing crypto platforms such as Coinbase Global Inc. and Binance Holdings Ltd., it offers a “non-custodial” model, meaning it does not hold customers’ digital assets during the trading process. Chief Executive Officer Jamil Nazarali said EDX is working with third-party custodians.
Nazarali said that regulators’ expectations that cryptocurrency exchanges should be separated from broker-dealer functions, similar to the structure of traditional financial markets, will create opportunities for EDX.
“We believe cryptocurrency is here to stay, but for it to grow as an asset class it needs to adopt the rules and investor protections that exist in traditional finance,” Nazarali said in an interview. “The message we’re getting from investors is that this creates more room for us to grow.”
EDX, which is already backed by Paradigm, Sequoia Capital and Virtu Financial Inc., among others, has raised new money from other investors, including Miami International Holdings, GTS, GSR Markets and HRT Technology. It plans to launch EDX Clearing to settle trades later this year.
The SEC recently expanded its crackdown on the crypto industry by filing lawsuits against two of the largest companies, Binance and Coinbase, accusing them of acting as unregistered securities exchanges, broker-dealers, and clearinghouses. The companies have denied the allegations.
SEC Chairman Gary Gensler has long criticized existing crypto platforms for failing to separate different parts of their businesses, such as custody, market making and trading, which could lead to conflicts of interest.
Institutional interest in crypto investing has waned after the industry experienced a market crash and high-profile companies including FTX collapsed last year. Still, some traditional financial institutions have been laying the groundwork for participating in the crypto market. BlackRock Inc., the world’s largest asset manager, filed last week to launch a spot bitcoin exchange-traded fund.