(Bloomberg) -- Early cryptocurrency lenders failed, then the industry's second largest exchange collapsed. Next up are crypto-friendly banks. In the latest coup, the main trading company in charge of the market's water pipeline is now downsizing.
Bloomberg's most read
With Jane Street Group, Jump Trading, and other major companies exiting the crypto business due to regulatory scrutiny in the US, the market quickly became liquid, mainstream, and attractive to institutional investors. This leaves a new landscape of digital asset trading as a cryptocurrency industry in the not too distant future.
"They bring real traction and legitimacy to an industry that is on the margins," said Michael Safai, co-founder of London-based Dexterity Capital. Frequency: "There are lots of other stores like us, small shops that you may not have heard of," says one company trying to fill the gap.
According to Noel Acheson, head of market intelligence at Genesis Global Trading Inc. and author of the Crypto Is Macro Now newsletter, the recovery of major market makers is threatened by the risk of big investors moving big orders. . . This could trigger a "pace reduction," he said, in which market makers are needed before demand can be made, but demand is needed before market makers are ready to respond.
"It's a very different market now than it was last year," said Acheson. "Market maturity is heavily influenced by market liquidity, supply diversity, and service provider diversity, and the cryptocurrency market has taken several steps forward in all of these areas."
Jane Street and the bounce have affected the liquidity and price stability in the cryptocurrency market. Bitcoin trading volume fell to an average of $4 billion per day last week from $20 billion in March, according to data from Coin Metrics Inc.
The effect can be seen especially on Binance.US. In early May, the bitcoin price on the trading platform simultaneously exceeded the consensus price on other exchanges by more than $600. Market makers profit from dynamic price arbitrage, eliminating price differences for the same asset in different products. And the value of bitcoin in US currency has fallen 50% since the start of the year, according to data provider Caico.
According to Arkham Intelligence Inc, since early May, a wallet known as the jump has been withdrawing capital from Binance.US deposits without any news.
"The decline in market makers, a key part of floating business activity, has raised concerns about overall market strength in the short term," CoinMetrics analysts wrote.
Binance.US did not respond to a request for comment. Representatives for Jump and Jane Street declined to comment.
Read more. Watching the Bitcoin rally offers a deceptive depth of interest
The move by the two companies comes amidst industrial unrest that started nearly a year ago. The Terra and Luna coin boom includes hedge funds Three Arrows Capital and Celsius Network LLC and Voyager Digital Ltd. Then came the collapse of the empire of Sam Bankman-Fried, FTX exchange and hedge fund Alameda Research. . Within months, Silvergate Capital Corporation and Signature Bank collapsed, making it difficult for cryptocurrency firms to open bank accounts and access US dollars.
At the same time, US regulators want to avoid further scrutiny of market makers, which has sparked an industry crackdown on crackdowns.
Jane Street and Leap are one of the largest trading firms in the United States, a powerful but low-profile group of companies that operate stock and options markets. The two companies entered cryptocurrency on the back of the industry's two-year bull market that ended in late 2021. The Jump Digital Assets, Jump Crypto and Jane Street divisions have drawn attention as they are among the trading companies being investigated by US prosecutors. An investigation into the failed TerraUSD stablecoin project. Neither company has been accused of wrongdoing.
Jane Street is boosting its crypto ambitions around the world as regulatory uncertainty makes it harder for companies to do business on a domestic basis, a person familiar with the matter told Bloomberg News this month, and is pulling away from the high-flying cryptocurrency. . The US market is for the same reason, said two people familiar with the matter. Both companies are rather nascent, people say.
Read more. Jane Street Skip Crypto Trading During US Crackdown
Jane Street has emerged as the newest cryptocurrency liquidity provider, providing quoted prices for Bitcoin, Ethereum, and major cryptocurrency exchanges and brokers. It is one of several Wall Street quants to enter the digital asset space in recent years, along with DRW Holdings, Susquehanna International Group and Hudson River Trading. Some have bought shares in crypto startups, signed deals with token projects, and dabbled in decentralized finance with wild cryptocurrencies, the computer code that makes transactions.
A number of Jane Street students have specialized in cryptocurrency companies. He worked at Bankman-Fried before leaving to found Alameda in 2017.
Institutional loans are also a major source of deal volume, but lending has slowed following losses at Celsius Network, BlockFi and Genesis Global Capital.
"Over the past year, the market has lost most of its liquidity to pension funds, and most of that liquidity is provided by individuals on profits," said Chris Zuelke, DRW partner and global head of Cumberland DRW. The digital assets division of the Chicago trading house founded by Don Wilson.
No layoffs.
Cumberland was one of those companies that the other big players turned down. The other is Wintermuth Trading Ltd and has grown to 80 employees, up 30% from last year. The London-based crypto market maker is expanding its business into more traditional cryptocurrency-related trading instruments, such as exchange-traded commodities and futures listed on the Chicago Mercantile Exchange and Eurex, as well as over-the-counter trading.
"We are one of the few companies that have not resorted to downsizing and layoffs," Wintermut CEO Yevgeny Gayvoi said in an interview.
Galaxy Digital Holdings, a crypto financial services company founded by Michael Novogratz, is positioning itself to benefit other retirees.
“There is a lot of quicksand in the cryptocurrency industry after 2022. Historically you have seen some of the big players in the space blow up or suffer significant losses,” said Jason Urban, Galaxy's Head of Global Trading. We are the beneficiaries.
The company recently set up a business group in Hong Kong to handle offshore growth. Indeed, due to the decline of big players and increased regulatory scrutiny in the US, the cryptocurrency industry has had to be controlled by smaller companies, with most of the activity taking place overseas, such as South Korea, Australia and Switzerland. Safai Dexterity Capital is one of the recipients of the Jane Street and Jump Reduction.
"We were able to speed up and ship some fluids and fill some of the gaps," said Safai. But I don't have flying balances, Jane Street balances, and the loss of liquidity in the market is bad for the price and for everyone. Hopefully someone will step up and fill in the blanks.
Most read Bloomberg Business Week
©2023 Bloomberg LP