The United States risks losing its leadership position in the crypto race as large U.S. firms refuse to trade digital assets in the country amid heightened regulatory scrutiny.
Large market makers such as Jane Street Group and Jump Trading are scaling back their crypto trading operations in the U.S. due to increased regulatory pressure. Bloomberg reports this. This leads to less liquidity in the market, making it less attractive to institutional investors.
According to Michael Safai, Co-Founder of London-based Dexterity Capital, companies like Jane Street Group and Jump Trading gave the industry seriousness, making it more popular and reliable. However, the departure of the big players sets the U.S. crypto industry back several years, making the industry volatile and risky.
According to Noelle Acheson, Genesis Global Trading Inc. Analyst, the refusal of major market players to support cryptocurrencies is likely to alienate large investors, who will be wary of the increased risk of price movements with large orders. And the situation could be critical, as demand for crypto will fall, which will reduce the industry’s popularity, and large players will only return to the market if there’s increased demand.
Jane Street and Jump Trading’s refusal to operate with cryptocurrencies already impacts liquidity and price stability in crypto markets. For example, Coin Metrics reports that BTC trading volume averaged about $4 billion daily in May, up from $20 billion in March. Spot trading volume in ETH also dropped to $2 billion per day.
In a note to clients, ARK Invest Analyst Yassine Elmandjra argues that the decline in crypto support by trading firms Jane Street and Jump Trading can be seen as early signs of a market reaction to the country’s insecure regulation. According to Elmandjra, the UAE, South Korea, Australia, and Switzerland could soon overtake the U.S. in the race for innovation, as those countries have a more business-friendly infrastructure for digital assets.
In addition, the analyst noted that the liquidity of cryptocurrencies in the U.S. decreased significantly. In particular, BTC trading volume in the country has declined by 75% over the past two months. Elmandjra said the uncertainty of industry regulation in the U.S. drives away both existing firms and new participants.
The departure of Jane Street Group and Jump Trading come amid industry turbulence that began almost a year ago. The collapse of Terraform Labs projects led to the closure of hedge fund Three Arrows Capital and crypto lenders Celsius Network LLC and Voyager Digital Ltd. The collapse of Sam Bankman-Fried’s empire followed. Within months, crypto-friendly banks Silvergate Bank, Silicon Valley Bank, and Signature Bank also collapsed, making it harder for crypto firms to access U.S. dollars and banking services.
Meanwhile, U.S. regulators continue to increase pressure on the industry through enforcement actions, so merchants are seeking to avoid being subject to raised scrutiny. For example, some U.S.-based cryptocurrency companies are already beginning to look elsewhere, considering Hong Kong and the UAE as more suitable jurisdictions to conduct crypto businesses.
