Bitcoin takes hit as market makers pull back from U.S. crypto trading

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On Thursday, Bitcoin experienced a decline, dropping below $27,000, as investors responded to a report regarding the reduction of crypto-trading activities by two prominent market makers, Jane Street Capital and Jump Crypto.

As Coin Metrics reported, Bitcoin saw an over two percent decrease, settling at $26,316, while Ether had a 1.46 percent loss, trading at $1,760.54. According to CNBC, Bitcoin is expected to conclude the week with a decline of over eight percent, while Ether is projected to experience a nine percent decline.

Per a recent Bloomberg article, Jane Street and Jump Crypto will scale back their involvement in U.S. crypto trading due to increased regulatory scrutiny by the country’s authorities.

Bloomberg said that Jane Street and Jump Crypto were not entirely withdrawing from the cryptocurrency industry. They would continue to operate as market makers. However, Jane Street is reducing its plans for global expansion in the crypto sector.

On the other hand, Jump Crypto, the digital assets trading unit of Jump Trading, is retracting from U.S. markets but still plans to pursue international expansion.

Speaking to CoinDesk, Kaiko analyst Riyad Carey commented that the news of Jane Street and Jump Crypto’s withdrawal from the industry is not particularly unexpected considering recent events.

However, the concern lies in the fact that liquidity has not yet rebounded from the collapse of Alameda, and a slowdown in activities from two major market makers could further impact liquidity.

Enclave Markets CEO David Wells pointed out that there would be more significant fluctuations in price in both directions because many prominent market makers have significantly scaled back their involvement. This reduction in their role as liquidity providers leads to less price stability.

Wells explained that the thinner order books result in more frequent price gaps, causing prices to experience frequent upward and downward movements.

Last month, Bitcoin reached the $30,000 mark for the first time since June. Since then, it has faced challenges in surpassing this level, fluctuating between the $30,000 threshold and the higher range of the $26,000 level.

Regulators increase scrutiny

The decrease in cryptocurrency prices is no surprise, given the heightened scrutiny on the digital-asset industry. This increased scrutiny follows the recent failures of prominent firms and projects, such as FTX, the crypto exchange established by Sam Bankman-Fried, and the TerraUSD stablecoin.

At the end of February, the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency collaborated on a joint statement warning banks about the potential liquidity risks of providing banking services to crypto companies.

The recent lack of liquidity in the market has become a prominent concern, particularly after Silvergate and Signature Bank’s shutdown, the primary gateways for fiat currency entry into the cryptocurrency market.

Jane Street, Jump Crypto in digital-asset industry

During a probe into the failed TerraUSD stablecoin project, both Jane Street and Jump Trading were among those questioned by U.S. prosecutors. Jump Crypto has been a significant supporter of the TerraUSD project since 2019.

Meanwhile, in an anonymous citation by the Commodity Futures Trading Commission and two other U.S.-based quant-trading firms, Jane Street was also mentioned in its lawsuit against Binance Holdings Ltd. The regulators did not accuse both trading firms of wrongdoing.

Jane Street is well-known for its significant presence in markets such as exchange-traded funds and corporate bonds, contributing substantially to its business operations. Since 2017, the company has actively engaged in executing cryptocurrency trades.

Several former employees from Jane Street transitioned to firms focused on cryptocurrencies. Before encountering difficulties and setbacks, some of these individuals joined FTX and its sister company, Alameda Research.

Bankman-Fried, who previously worked at Jane Street in New York, left the company to establish Alameda in 2017. Caroline Ellison followed suit a year later and assumed the position of chief executive officer at Alameda.


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