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Jump and Jane Street retreat from crypto to hit smaller firms the hardest

Jump and Jane Street retreat from crypto to hit smaller firms the hardest
SEC Chair Gary Gensler has cracked down on the crypto industry, spurring a rethink among US firms

A retreat by Jump Crypto and Jane Street from crypto markets in the US is another sign that finance giants are rethinking their strategies as watchdogs increase scrutiny on the cryptocurrency sector.

Experts say smaller firms will bear the brunt most.

“It points to the continuing trend of firms reassessing and adjusting their businesses in light of the US regulatory crackdown,” market structure expert and former Citigroup executive Sean Tuffy told DL News.

Impact on smaller crypto players

“It’s a little like what’s happening with banks — they don’t seem to be abandoning crypto but rather being more discriminate about with whom they do business,” he said. The shift “will impact smaller crypto players more.”

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Market makers Jane Street and Jump Crypto plan to scale back digital asset activity amid US regulatory uncertainty, Bloomberg reported Tuesday. Jump Crypto plans to expand its overseas operations, the report said, following other major crypto firms Gemini and Coinbase.

A hawkish regulatory stance from the Securities and Exchange Commission comes amid fallout from the collapse of exchange FTX combined with a crisis among smaller American banks. The events have emboldened regulators to crack down on the industry.

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Markus Thielen, head of research and strategy at digital asset investment firm Matrixport, added that retail investors will also face higher costs.

“Crypto market liquidity will now gravitate to the largest exchanges, with smaller exchanges being the casualty,” Thielen told DL News.

‘Everything is grinding to a standstill in the US’

“The order book on exchanges will offer less liquidity and stops will be liquidated at worse prices.”

The SEC’s enforcement efforts may drive a migration to what Coalition Greenwich earlier this year called “institutional-grade” infrastructure as crypto investors seek safer guardrails and regulatory clarity as markets mature.

Established players tend to win the backing from regulators — and thus bigger investors — over startups with less funds and weaker compliance controls.

‘No one wants to be wrong-footed’

“No one wants to be wrong-footed by the regulators,” Niki Beattie, founder of London capital markets consulting firm Market Structure Partners and chair of ClearToken, a digital assets clearing house, told DL News.

Firms including Jump and Jane Street “prefer to work in a regulated environment, and they would benefit from new platforms to trade on which have been given regulatory permissions,” she said. “But everything is grinding to a standstill in the US.”

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It’s a U-turn from only a few years ago, when Jump Crypto, the crypto arm of Jump Trading, launched in September 2021. The unit’s president, Kanav Kariya, said at the time that he wants to position the company as a big player in an industry that is “going to be enormous.”

Jane Street has run into regulatory snags recently when it comes to crypto, which Tuffy pointed to as a potential driver for the firm to “reassess things.”

While the company wasn’t accused of any wrongdoing, Tuffy said, “ultimately, I’m sure it doesn’t want to imperil its TradFi trading business.”