Bitcoin enthusiasts embrace a ‘ridiculous’ Jane Street conspiracy to account for price decline
Bitcoin has had a rough few months, with prices dropping by over 40% since October. For investors, this has been particularly exasperating because, unlike in previous downturns, there’s no apparent reason for the market’s slump. However, this week, the always-online group called Crypto came up with a suspect: The secretive Wall Street firm Jane Street, which they alleged had been involved in a stealthy form of ETF-related trading that systematically depressed the market.
The theory led to a series of viral posts in the chaotic world of social media and got more attention when Bitcoin had a midweek rally—after more claims that Jane Street changed its trading patterns after being “exposed.” But the claims seem flimsy at best in the eyes of Wall Street veterans. They were also dismissed by someone close to Jane Street, who wasn’t authorized to speak on the record but called the claims an “utterly ridiculous” conspiracy theory.
The baseless claims that Jane Street manipulated Bitcoin’s price center around the firm’s role as an “authorized participant” in the relatively new market for crypto ETFs offered by and others. So-called “APs,” which are an essential part of the ETF scene, are wealthy firms that help ensure ETF share prices match the value of the assets they hold, enabling the firms to profit from arbitrage.
Jane Street has been acting as a Bitcoin AP for a while. But this week, social media posts started emerging alleging the firm was up to something shady. The specific accusations vary, but most involve some version of Jane Street selling its Bitcoin holdings at a certain time every morning while holding short positions to gain from the resulting price drop. However, there’s no solid evidence to back this theory, and experienced market watchers don’t give it much credence.
“The argument doesn’t make any sense and completely misinterprets how derivatives and perps/futures work, as well as what an AP does for these ETFs,” said Rob Hadick, a partner at Dragonfly Capital, who has worked at Goldman Sachs and other Wall Street firms.
Even though the rumors about Jane Street manipulating Bitcoin seem unfounded, recent controversies around the firm might have contributed to them. These include a lawsuit filed last week by the administrator winding down the bankrupt stablecoin issuer Terraform Labs, which accused Jane Street of insider trading as the firm collapsed.
In a statement, Jane Street rejected what it called “baseless, opportunistic claims” related to its role at Terraform Labs, stating that the firm’s stablecoin collapsed due to massive fraud committed by its now-imprisoned founder. This explanation is the common view, but a general dislike for Jane Street among some in the crypto and financial worlds might be fueling claims that the firm was involved in Terraform Labs’ downfall.
The reason for the animosity towards Jane Street in some circles partly comes from the firm once hiring notorious conman Sam Bankman-Fried and his former girlfriend, Caroline Ellison, who were both later convicted of fraud-related crimes linked to the collapse of the crypto exchange FTX. Jane Street might also have incited jealousy among some traders with its highly profitable trading strategies and the secretive and odd behavior of co-founder Rob Granieri, as described in.
All this indicates that, during a period of prolonged market distress, the crypto sector might have found an easy scapegoat. “It’s just people who don’t understand the markets and want a villain to blame for why they haven’t made more money,” said Hadick.