The crypto liquidity decreases because Market Makers retire from the hostile US market

the central theses

• Jane Street and Jump Crypto, two leading crypto marketmakers, reduce their crypto activities
• The decision is made, since the US supervisory authorities continue to act aggressively against the sector
• The liquidity in cryptocurrencies is already low, and these measures will only reduce them and increase volatility, writes our research manager Dan Ashhor

Only at the beginning of this week I wrote one piece about institutions that give up crypto. It has gotten worse in the past few days.

Bloomberg reported on Tuesday that market maker Jane Street and Jump Trading reduce their crypto focus. Although they will not fully withdraw from the sector, the report says that the duo will operate a smaller extent than before.

This is a severe blow for the cryptoma markets that have already had a low liquidity since the Market-Making-Riese Alameda has disappeared together with FTX in November. I published an article Last week Analysis of the drainage of stablecoins from the stock exchanges ($ 22 billion flowed into the outdoor doors in five months), while the order book depth is alarming since Sam Baankman-Fried's party tricks were uncovered.

This liquidity will deteriorate. Volatility increases with less liquidity, since less capital is required to move prices. This increases movements both up and down, which I have analyzed in April as the Bitcoin price, volatility and the level of profit have reached all their highest values since June 2022.

investors must be aware that prices have increased in the past six months, but the sector does not really report anything positive. On the contrary - the number of bankruptcies increased in January in view of the continuing effects of FTX, while the supervisory authorities have had pressure since then.

, however, the prices have increased as much as the cryptoma markets correlated as strongly with the stock exchange and other risk systems. Since the market expectations regarding the future development of interest rates have decreased, risk systems recovered - and this also applies to cryptocurrencies.

Since this low liquidity decreases further and further, the movements are only more volatile. On Friday morning, Bitcoin noted at $ 26,200, a decrease of 7 % in the last 36 hours.

regulatory authorities urge the crypto sector under pressure

Jane Street and Jump Crypto were increasingly under observation, since the US regulators continue to act aggressively against the sector. Since the collapse of FTX in November, the regulatory environment towards the crypto industry has become far more hostile.

ironically Sam Bankman-Fried worked on Jane Street before founding Alameda in 2017. Caroline Ellison, former CEO of Alameda, who reported reportedly before his trial against Bankman-Fried, also worked on Jane Street before she came to Alameda.

Jane Street was one of the three US trade companies that were given in the complaint of the Commodity Futures Trading Commission against Binance as examples of how US companies could access the platform, although Binance claimed to ban them.

Jump Street was a great supporter of Terra, the company behind the terrausd stable and the sister coin Luna, whose course dropped to zero in May 2022. The company was interviewed in an investigation after its downfall by US prosecutors.

The procedure was controversial because crypto-native companies denounced that their activities had to be shifted abroad. Brian Armstrong, CEO of Coinbase, was one of the most prominent voices that expressed this opinion, and said this week that Coinbase would consider the United Arab Emirates as an international base, since the United States continued to turn the screw.

of the stock exchange was recently delivered to a wells in which it warned of impending legal steps, most likely in connection with a violation of securities laws.

"Krypto and Web3 offer the VAE enormous opportunities for economic and technological diversification, and the region has the potential to become a strategic hub for coinbase and to strengthen our efforts around the world," said Coinbase in a blog post.

On the other hand, some praise the long overdue pressure on a sector that is based on nothing but greed and last year gave many private investors enormous losses. Whatever you think, it is clear that the United States creates an increasingly hostile environment for every company that works in the crypto sector.

How is crypto going?

At the moment, crypto seems to be prepared to go beyond the United States without there being choosing its own choice. Even if the industry can continue, this is still a difficult blow. The steep rise of cryptocurrencies during pandemic was largely based on the assumption that institutions and traditional finances would inevitably flock to the sector. Today it goes in the opposite direction.

The USA are the world's economic and financial center. The fact that crypto companies are displaced from this market will not completely prevent normal people from investing in the industry, but it will certainly make it more difficult and less comfortable. The innovation in the industry will also restrict. All of this is negative for the sector and will undoubtedly inhibit its future growth.

As far as the price effects are concerned, Jane Street and Jump Crypto's decision harms itself to withdraw, the industry at a point where it has already suffered: liquidity. The volatility in the industry will certainly not disappear so quickly, but will rather increase.