The cryptocurrency market is currently digesting the bombshell lawsuit against Jane Street by the bankruptcy estate of Terraform Labs, which alleges insider trading.
Now, some industry voices are wondering whether or not Jane Street is actually responsible for suppressing the price of the flagship coin.
Jeff Park, advisor at Bitwise, has concluded that the reality is “trickier than the question” and “more structurally unsettling than the conspiracy theory itself.”
According to Park, the alleged price suppression might be a feature of regulatory architecture itself.
Park has mentioned a specific regulatory exemption within Regulation SHO, a rule designed to govern short selling.
Short sellers typically must “locate” shares before shorting to prevent naked shorting, but Jane Street, JPMorgan, and Goldman Sachs are exempt.
“This is the grey window: a regulatory carve-out designed for orderly ETF market-making that is, structurally speaking, indistinguishable from a regulatory arbitrage with unmatched duration,” Park wrote.
When an ETF trades below its Net Asset Value (NAV), an arbitrage buyer typically steps in to buy the ETF and sell the underlying asset. In the Bitcoin ETF world, however, the AP is the arb buyer.
Park notes that this breaks the natural mechanism that would typically drive spot buying pressure. “The gap cannot close via the natural arb mechanism because the natural arb buyer chose not to buy spot.”
The researcher has concluded that no AP explicitly suppresses the Bitcoin price. However, the AP structure can suppress the integrity of the price discovery mechanism.
Park’s analysis sparked a lot of reactions on social media, and some were skeptical. Dave Weisberger, Co-CEO of CoinRoutes, pushed back on the idea that this suppresses price over the long term.
“Empirically, this isn’t true over any substantial time frame,” Weisberger argued. “Futures always resolve to spot on expiration.” However, Weisberger acknowledged that manipulation remains a concern.
Keone Hon, CEO of Monad, also challenged the theory. “This conspiracy theory doesn’t hold up,” Hon replied. “Hedging short IBIT positions with long futures means that some other party will (on average) end up holding a short futures position that they have to hedge with a long spot position.”
