Bloomberg reported on Tuesday that market makers Jane Road and Soar Buying and Selling are shifting their attention away from cryptocurrency. While not completely exiting the industry, the article stated that the pair may be market-making on a lower scale than previously.
It is a huge blow for crypto markets, which have already been suffering from a lack of liquidity when market-making giant Alameda went down with FTX in November. I published a piece last week assessing the outflow of stablecoins from exchanges ($22 billion has left in 5 months), but order guidance depth has been disturbingly thin since Sam Baankman-Fried’s get-together tactics were disclosed.
That liquidity is about to deteriorate more. Lower liquidity leads to more volatility since less money is necessary to move expenses. As a result, strikes to both the upside and downside are accentuated, as I observed in April when Bitcoin’s worth, volatility, and revenue ranges all hit their greatest levels since June 2022.
Traders should be wary that, while prices have been climbing over the last six months, nothing positive has likely emerged from the industry. Bankruptcies increased in January as a result of the ongoing repercussions from FTX, whereas regulators have tightened the screws subsequently.
More than anything, prices have been climbing because crypto markets are so highly associated with the stock market and other risk assets. As market assumptions for the future course of interest rate hikes have peeled back, risk property has returned – and this includes Bitcoin.
With this limited liquidity just becoming worse, the strikes will get further more volatile. Bitcoin is trading at $26,200 as of Friday morning, down 7% in the last 36 hours.
Jane Road and Soar Crypto have come under increased attention as US officials continue to tighten their grip on the crypto market. Since FTX’s demise in November, the regulatory environment has become even more unfriendly to the crypto trade.
Contrary to popular belief, Sam Bankman-Fried worked at Jane Road before launching Alameda in 2017. Caroline Ellison, the former CEO of Alameda who has apparently turned on Bankman-Fried ahead of his trial, also worked at Jane Road previously than joining Alameda.
Jane Road was one of three US purchasing and selling firms referenced in the Commodity Futures Trading Fee case against Binance as instances of how US corporations might enter the platform despite Binance professing to restrict them.
Soar Road was a strong supporter of Terra, the company behind the TerraUSD stablecoin and sibling coin LUNA, which went bankrupt in May 2022. Following its dissolution, the agency was questioned by US authorities in an inquiry.
The crackdown has been contentious, with crypto-native enterprises claiming that the exercise may cause them to relocate abroad. Coinbase CEO Brian Armstrong has been one among the many high-profile voices to express this opinion, stating this week that Coinbase might consider the UAE as a worldwide base because the US continues to muck things up. The alternative was just served with a Wells notice from the SEC, which is a notice of imminent legal action, most likely for a breach of securities laws.
“Crypto and Web3 present significant opportunities for financial and technological diversification for the UAE, and the region has the potential to be a strategic hub for Coinbase, amplifying our efforts globally,” Coinbase stated in a blog post.
Alternatively, some are applauding what they see as a long-overdue squeeze on a sector built on nothing but greed, which has resulted in bone-crushing losses for many retail purchasers over the past year. Whatever your point of view, it’s evident that the US is becoming antagonistic to any agency operating in the crypto space.
What is next for cryptocurrency?
Right now, the cryptocurrency looks poised to bypass the United States on its own. While the trade can continue, this is a significant setback. Much of the high trajectory of crypto during the epidemic was predicated on the assumption that institutions and traditional money would eventually flow into the industry. It’s currently moving the other way.
The United States is the world’s financial and monetary center. Crypto firms being forced out of this market would not completely deter average people from participating in the market, but it will make it more difficult and less convenient. It may also stifle innovation within the industry. All of this is negative for the sector and will likely impede its future development.
In terms of value, Jane Road and Soar Crypto’s desire to drag once again damage the trade in an area where it was already failing – liquidity. As a result, volatility in the industry isn’t going away anytime soon, and it’s just going to get worse.