The two market-making giants are the latest to pull back in America’s crypto exodus.
Two of America’s top market makers, Jane Street Group and Jump Trading, are pulling back from the crypto market, according to a report by Bloomberg.
Jane Street, a quantitative trading firm and liquidity provider, plans to scale back its plans for global crypto expansion, but it won’t be exiting the market entirely. Jump Trading on the other hand, another liquidity provider, will pull back from U.S. markets but will continue to expand internationally.
The pull backs come in light of extreme regulatory uncertainty in the US.
Since the collapse of FTX, American regulators have cracked down hard on crypto, filing lawsuit after lawsuit against digital asset providers while failing to provide regulatory clarity on how to comply.
Last March, US-based exchange Coinbase received a Wells notice from the SEC notifying it of pending enforcement action. In response, Coinbase’s chief legal officer Paul Grewal said that “efforts to engage with the SEC are met with silence or enforcement actions”. CEO Brian Armstrong went as far as threatening to move the Coinbase HQ outside of the US if regulators failed to provide clarity.
Binance has faced similar regulatory headaches this year. In March, the Commodity Futures Trading Commission (CFTC) sued the exchange for offering commodity derivatives transactions to US customers.
Even regulators themselves have lamented the lack of clarity. SEC Commissioner Hester M. Perice recently issued a scathing dissent against the Commission’s view that DeFi systems are ‘already’ exchanges, pointing out that many crypto firms have tried to register with the SEC but have been unable to do so due to lack of clarity.
She famously said: “The Commission does seem to anticipate that its interpretation will drive decentralized protocols toward centralization, extinction, or expatriation.”
Crackdown efforts have cumulated into four major bank collapses – the largest banking failures the US has seen since 2008.
What will Jane Street and Jump Trading’s pull back mean for the crypto market?
In short, it will likely lead to volatility.
Market makers like Jane Street and Jump Trading help to provide liquidity to financial markets by buying and selling assets on a continuous basis. They’re essential in ensuring that there’s always a market for a particular cryptocurrency.
When a market maker exits, volatility quickly follows. This phenomenon is seen in both traditional and cryptocurrency markets.
One notable example is the “flash crash” that occurred in May 2010, when the Dow Jones Industrial Average dropped more than 1,000 points in a matter of minutes, only to recover just as quickly. The cause of the crash was traced back to the actions of a single market maker, who had placed a large sell order that triggered a cascade of automated trades.
Additionally, in 2019, crypto exchange BitMEX experienced a significant drop in trading volumes after the CFTC launched an investigation into the company’s trading practices. BitMEX was known for its active market-making activities in the Bitcoin futures market, and its exit from the market was cited as a contributing factor to the subsequent decline in Bitcoin prices.
Jane Street and Jump Trading are yet to publicly comment on Bloomberg’s report.
Disclaimer: CryptoPlug does not recommend that any cryptocurrency should be bought, sold, or held by you. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.