Key Takeaways

• Jane Street and Jump Crypto, two prominent crypto market makers, are scaling back crypto operations
• The decision comes as US regulators continue an aggressive clampdown on the sector
• Liquidity is already thin in crypto, and these moves will only drop it further and increase volatility, writes our Head of Research, Dan Ashmore  

It was just earlier this week that I wrote a piece about institutions abandoning crypto. In the couple of days since, it has got worse. 

Bloomberg reported Tuesday that market makers Jane Street and Jump Trading are reducing their crypto focus. While not pulling out of the sector completely, the report stated the duo will be market making at a smaller scale than previously.

This is a big blow for crypto markets which were already showing thin liquidity since market making giant Alameda evaporated alongside FTX in November. I published a piece last week analysing the outflow of stablecoins from exchanges ($22 billion has headed for the exit doors in five months), while order book depth has been alarmingly shallow ever since Sam Baankman-Fried’s party tricks were revealed. 

That liquidity is about to get even worse. With lower liquidity comes greater volatility, as less capital is required to move prices. Thus, moves to both the upside and downside are exacerbated, something I analysed in April when the Bitcoin price, volatility and profit levels all reached their highest marks since June 2022. 

Investors need to be wary that, while price has been rising the last six months, there has not really been anything positive coming out of the sector. Quite the opposite, in fact – bankruptcies picked up in January amid the continued fallout from FTX, while regulators have put the squeeze on since. 

More than anything, prices have been rising as crypto markets are so strongly correlated with the stock market and other risk assets. As market expectations around the future path of interest rate rises have peeled back, risk assets have rebounded – and that means crypto, too. 

With this low liquidity only getting lower, the moves will only become more volatile. As of Friday morning, Bitcoin is trading at $26,200, down 7% in the last 36 hours. 

Regulators squeezing the crypto sector

Jane Street and Jump Crypto faced increasing scrutiny as US regulators continue to clamp down aggressively on the sector. Since FTX collapsed in November, the regauyltory environment has become far more hostile to the crypto industry. 

Ironically, Sam Bankman-Fried worked at Jane Street before founding Alameda in 2017. Caroline Ellison, former CEO of Alameda who has reportedly turned on Bankman-Fried ahead of his trial, also worked at Jane Street before joining Alameda. 

Jane Street was among three US trading firms cited by the Commodity Futures Trading Commission lawsuit against Binance as examples of how US firms could access the platform despite Binance claiming to prohibit them. 

Jump Street was a large backer of Terra, the firm behind the TerraUSD stablecoin and sister coin LUNA, which spiralled to zero in May 2022. The firm was questioned by US prosecutors in an investigation after its demise. 

The clampdown has been controversial, with crypto-native firms decrying that activity will need to move off offshore. Coinbase CEO Brian Armstrong has been among the most high-profile voices to relay this sentiment, saying this week that Coinbase would consider the UAE as an international base, as the US continues to turn the screw. 

The exchange was recently served with a Wells notice from the SEC, a warning of impending legal action, most likely in relation to a violation of securities laws. 

“Crypto and Web3 serve as enormous opportunities for economic and technological diversification for the UAE, and the region has the potential to be a strategic hub for Coinbase, amplifying our efforts across the world”, Coinbase said in a blog post. 

On the other hand, some are praising what they believe is a long overdue squeeze on a sector built upon nothing but greed, that has brought bone-crushing losses for many retail investors over the past year. Whatever your view, it is clear that the US is creating an increasingly hostile environment for any firm operating in the crypto space. 

What next for crypto?

Right now, crypto seems primed to move beyond the US, through no choice of its own. While the industry can continue, this still constitutes a massive blow. So much of the steep trajectory of crypto during the pandemic was based upon the thought that institutions and traditional finance would inevitably pour into the sector. Today, it is going the opposite way. 

The US is the economic and financial centre of the world. Crypto firms being forced out of this market won’t entirely prevent everyday people from investing in the industry, but it certainly will make it more difficult and less convenient. It will also limit innovation in the sector. This is all bearish for the sector and will undoubtedly inhibit its growth going forward. 

As for the price effects, Jane Street and Jump Crypto’s decision to pull back hurts the industry in a place it was already suffering – liquidity. The volatility in the sector certainly won’t be going away anytime soon, therefore, but rather only increasing. 

Bitcoin, the flagship crypto slipped below $40K after the Federal Reserve Bank of the United States made hostile comments.

Powell stated on Thursday that at the upcoming Federal Open Market Committee meeting, the Federal Reserve will consider raising the benchmark interest rate by 50 basis points (0.5 percentage point).

Bitcoin Slips Below $40K

It was just a few days ago that the leading cryptocurrency hit a high of about $43,000, its highest level in over 10 days. This was an especially surprising price given that the asset had fallen to a monthly low of just $39,000 earlier this week.

BTC, on the other hand, was roundly rejected at its local peak and quickly reversed course. The asset’s value plummeted to $40,000 in a matter of hours.

As the bulls lose the $40,000 support level, a level that has yet to be established as a meaningful line this year, the most valuable coin has no shortage of negative mid-term predictions.

Bitcoin’s price failed to retain the important levels of $41,500 and $40,000 despite a strong negative control. Bears are expected to aim for the $38,536 swing low from Monday, which is a clear objective for those still in the trade. If the swing low is breached, the BTC price may be disappointed and fall back to low $36,000.

As a result, bitcoin’s market capitalization has dropped to $750 billion, after briefly surpassing $800 billion earlier this week.

Related Reading | Why A “Boring” Bitcoin Could Be A Good Thing

Buy Or Sell?

BTC price has to open above $44,088.73 on Monday, as a Macron victory will cause the Greenback to fall further, allowing for further upside possibilities. Add to that the fact that news from Ukraine is becoming increasingly second-tier and receding into the background, indicating that talks are still ongoing and a solution might be reached at any time, as Russian military efforts are now focused solely on the west, rather than the entirety of Ukraine.

The French election is the major event risk this weekend. If Le Pen, a far-right candidate, defeats Macron in the election, expect a huge market shift and shock on Sunday evening and Monday in the ASIA PAC session.

Currently, investors are ‘waiting and watching’ to see how the supply-demand situation will react to the support area. Since late January, the BTC price has been trading in a ‘rising wedge pattern,’ as shown on the weekly chart.

BTC/USD trades at $39k. Source: TradingView

A bounce-back is expected at the price from the current level with the bulls targeting the 51,000 mark. However, in this course of the journey, the bulls must close above the 50-day EMA (Exponential Moving Average) at $43,071.

Related Reading | Is Bitcoin Gonna See Another Big Drop Soon? Historical Trend May Say Yes

Featured image from Pixabay, chart from Tradingview.com

Elon Musk’s bid to buy Twitter, one of the largest and most influential social media platforms in the world, has been rocking the finance space recently. The billionaire who wants to take over the social media platform has made a very enticing offer for Twitter to be sold to him. However, he has also made threats to back up his bid to get his point across. And although this move has garnered support from a lot of prominent figures, Ethereum founder Vitalik Buterin is less than impressed with such hostile takeovers.

This Could Be Very Bad

Ethereum co-founder Vitalik Buterin recently took to Twitter to share his thoughts on Musk’s attempt to purchase Twitter. For many, Musk taking over the social media platform would be a good thing. However, Buterin notes that although this could ultimately be a good thing compared to the current leadership of Twitter, it could be a sliding scale that could set a precedent for other wealthy individuals and governments when it comes to hostile takeovers.

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As noted earlier, Musk had followed up his offer to purchase the social media platform with a threat. The billionaire who owns a 9.2% stake in the company is one of the largest shareholders and has threatened to sell off his shares in the platform if it is not sold to him. By doing this, Musk could effectively tank the price of Twitter stocks if he does not get his way. Thus making this a very prominent takeover.

Buterin explains that the enthusiasm for rich people like Musk to take over organizations like Twitter could end up going “very wrong”. He gave the example of an ethically challenged foreign government wanting to do something similar to what Musk is doing, which would be very bad for millions of people worldwide.

The “but that Saudi guy already owns 5%” point is well taken but ultimately weak imo. Control is superlinear in ownership stake. His level of ability to control policy is very low now, and would increase by *far* more than 10x if his ownership increased to 50%.

— vitalik.eth (@VitalikButerin) April 16, 2022

Will Twitter Sell To Musk?

Musk’s bid to purchase Twitter is still an ongoing one but this has not come without pushback. This showed prominently in the decision that was taken by Twitter’s board in response to Musk’s attempt at a hostile takeover.

Related Reading | Iran’s Illegal Crypto Miners To Be Slapped With Bigger Fines And Imprisonment

It has led to the adoption of the “poison pill” by the board in a bid to fend off further attempts like this in the future. This Rights Plan will make sure that a single person or entity is unable to take control of Twitter by allowing other shareholders to purchase more shares at a discounted price when a single entity or individual acquires at least 15% beneficial ownership of the company.

Furthermore, Musk has since been overthrown as the highest Twitter shareholder since news of his plan to purchase Twitter broke. According to a recent SEC filing, Vanguard Group is now the largest Twitter shareholder with a 10.3% stake compared to Musk’s 9.2%. Musk himself has also expressed that he is ‘not sure’ if his plan to acquire Twitter will be successful. 

Twitter price at $46 | Source: TWITTERUSD on TradingView.com

Featured image from The Indian Express, chart from TradingView.com