Kanav Kariya, President of Jump Crypto. Eva Marie Ozcategui – Bloomberg/Getty Images
As would-be issuers of a spot Bitcoin ETF race toward the finish line, one name has been noticeably absent: Jump, a trading firm closely tied to the cryptocurrency industry. While other market makers such as Jane Street and Virtu have partnered with issuers to play a key role known as an authorized participant, Jump has declined to participate.
The decision comes after a turbulent couple of years for Jump, which included its involvement with notorious digital asset firm Terraform Labs and the massive hack of one of its cryptocurrency projects, Wormhole. According to people familiar with the matter, Jump’s decision to move away from the nascent Bitcoin ETF industry reflects a broader strategic retreat from the once ubiquitous crypto space.
Big names are lining up for Bitcoin ETFs
The Securities and Exchange Commission, which has rejected applications for Bitcoin exchange-traded funds, is expected to finally relent on Thursday and allow dozens of companies to launch the new financial product. Trying to launch an exchange-traded fund has become something of a craze in recent weeks and is dominated by high-profile names of potential issuers, which include the likes of BlackRock and Fidelity. Other companies hold key roles behind the scenes, such as Coinbase, which plans to serve as Bitcoin’s custodian for many potential issuers.
In the esoteric structure of ETFs, authorized participants also fill a critical need, acting as an intermediary between issuers and investors to create and redeem ETF shares.
ETFs, which have been a staple of financial markets for decades, allow investors to trade baskets of assets such as stocks or commodities. However, the proposed Bitcoin ETFs present a unique challenge. Many of the authorized participants who could potentially participate in ETFs, such as major banks including Goldman Sachs and JP Morgan, lack experience in buying and selling cryptocurrencies or are restricted by SEC regulations on broker-dealers.
To partly address this issue, the SEC has pushed issuers toward a cash model of creation and redemption, meaning that the burden of buying and selling Bitcoin would be on issuers, not authorized participants, rather than an in-kind model, where participants would transact with Bitcoin. This allowed for a wider range of traditional market participants, with many issuers listing JPMorgan as an authorized participant in their most recent filings.
Other authorized participants mentioned in the filings, however, included market makers with experience in the cryptocurrency sector, including Jane Street — the former employer of FTX founder Sam Bankman-Fried — and Vertu. Fidelity has tapped another cryptocurrency trading firm, Cumberland DRW, to buy and sell Bitcoin for exchange-traded funds (ETFs), in addition to Jane Street.
Stay away from the ETF madness.
While Jump has previously been floated as a cryptocurrency-friendly company that can participate as an approved participant, it has not appeared in any capacity in any regulatory filings. One potential source said luck They did not contact Jump to participate, nor did Jump contact them.
Speaking on the condition of anonymity, a person familiar with the matter said the company declined to participate because it didn’t make sense from revenue experience, as well as its lack of experience with ETFs. Jump also does not act as a liquidity provider or market maker for exchange-traded ETFs, a different role than an authorized participant, though the person said Jump still plans to actively trade ETFs, should the SEC grant approval.
Others said luck Jump’s absence reflects its general retreat from cryptocurrencies. Until recently, Jump Crypto – the digital assets unit of Jump Trading – was one of the most active players in the sector. As revealed in a lawsuit filed by the Securities and Exchange Commission, Jump pumped millions of dollars into scammer Do Kwon’s Terraform Labs. The company also developed a messaging protocol called Wormhole, investing more than $200 million in the project after a massive hack.
In the wake of its disastrous bets on cryptocurrencies, including the collapse of Terra’s so-called stablecoin, Jump has begun scaling back its involvement in digital assets. Bloomberg Jump Crypto reportedly cut its workforce by nearly half after peaking at around 150 in 2022, and the company spun off from Wormhole at the end of 2023, before Wormhole announced a new funding round at a $2.5 billion valuation. Other Jump alumni have launched cryptocurrency projects including smart contract platform Monad and blockchain-based data service Pyth Network.
Even as Jump retreats from cryptocurrencies, its problems are far from over. In late December, a federal judge ruled that fraud charges in the SEC’s lawsuit against Terraform Labs would go to a jury. Part of the case will involve Jump’s alleged involvement in artificially maintaining a peg to its stablecoin.