Bitcoin has experienced a tumultuous few months, with its value plummeting over 40% since October. This significant decline has puzzled investors, as there has been no clear rationale for the downward trend, differing from previous downturns where triggers were more identifiable. Recently, this discontent has found expression on social media, particularly among the crypto community on Twitter. They have latched onto a theory suggesting that the Wall Street firm Jane Street is behind the market’s struggles, accusing it of clandestine trading practices tied to exchange-traded funds (ETFs) that purportedly suppress Bitcoin prices.
The theorists claim that Jane Street has been manipulating the Bitcoin market, a notion that gained traction following a brief rally in Bitcoin prices midweek. This rally coincided with assertions that Jane Street altered its trading strategies in response to the mounting allegations. However, these claims have been met with skepticism from seasoned Wall Street professionals, including an unnamed source close to Jane Street who ridiculed the accusations as an “absolutely ridiculous” conspiracy theory.
At the core of the allegations lies Jane Street’s involvement as an “authorized participant” in the emerging market for crypto ETFs, including those launched by BlackRock. These authorized participants play a crucial role in maintaining the alignment between ETF share prices and the value of the underlying assets, generating income through arbitrage. Although Jane Street has been active in this capacity regarding Bitcoin, the recent surge of online accusations claims the firm is manipulating the market through specific trading practices—most notably by allegedly selling Bitcoin each morning and holding short positions to profit from the subsequent price drops. Despite the attention these claims have gained, there is a conspicuous absence of substantive evidence to support this theory, and many market analysts have swiftly dismissed it as ill-conceived.
Rob Hadick, a partner at Dragonfly Capital and a former employee of Goldman Sachs, critiqued the theory, stating that it misunderstands both the functioning of derivative markets and the role of authorized participants in ETF transactions.
Amid the lack of credible evidence, recent events surrounding Jane Street may have contributed to the emergence of these rumors. Notably, the firm is facing scrutiny due to a lawsuit from the administrator of Terraform Labs, a stablecoin issuer that encountered a dramatic collapse. This lawsuit alleges insider trading against Jane Street during the downfall of Terraform, a charge the firm has categorically denied, attributing the stablecoin’s failure to fraudulent actions committed by its imprisoned founder. While the broader financial consensus supports Jane Street’s defense, the firm’s historical connections and the financial world’s mixed perceptions have led to an environment ripe for speculation.
The skepticism towards Jane Street is compounded by its association with figures like Sam Bankman-Fried and Caroline Ellison, both of whom faced legal repercussions for their roles in the FTX collapse. Additionally, the firm’s successful trading strategies and the enigmatic demeanor of co-founder Rob Granieri have fueled jealousy and distrust.
In the current climate of prolonged market difficulty, it seems that some in the cryptocurrency space have found a convenient scapegoat in Jane Street. Experts caution that the search for a “boogeyman” to blame for financial struggles reflects a fundamental misunderstanding of how markets operate, rather than any legitimate wrongdoing on the part of the company.
