As prospective issuers for a spot Bitcoin ETF race toward a finish line, one name has been notably absent: Jump, a trading firm closely associated with the crypto industry. While other market-making firms like Jane Street and Virtu have partnered with issuers to play a key role known as an authorized participant, Jump declined to be involved.
The decision follows a tumultuous two years for Jump, which included its involvement with the notorious digital asset firm Terraform Labs and a massive hack of one of its crypto projects, Wormhole. According to people familiar with the matter, Jump's decision to shy away from the emerging Bitcoin ETF industry reflects a broader strategic retreat from the crypto space where it was once omnipresent.
Big names line up for Bitcoin ETFs
The Securities and Exchange Commission, which has rebuffed applications for Bitcoin ETFs, is expected to finally relent on Thursday and let a dozen-odd firms launch the novel financial product. The bid to launch an ETF has become a frenzy in recent weeks and is dominated by the high-profile names of would-be issuers, which include the likes of BlackRock and Fidelity. Other firms are occupying key behind-the-scenes roles, such as Coinbase, which plans to serve as Bitcoin custodian for many of the prospective issuers.
In the esoteric structure of ETFs, authorized participants also fill a critical need, serving as a middleman between the issuers and investors to create and redeem shares of the ETFs.
ETFs, which have been a fixture of financial markets for several decades, allow investors to trade baskets of assets such as stocks or commodities. The proposed Bitcoin ETFs, however, present a unique challenge. Many of the authorized participants likely to participate in ETFs, such as major banks including Goldman Sachs and JP Morgan, lack experience buying and selling cryptocurrencies or are otherwise restricted because of SEC regulation around broker-dealers.
In part to address this issue, the SEC pushed issuers toward a cash model for creation and redemption, meaning that the onus for buying and selling Bitcoin would be on the issuers, not authorized participants, rather than an in-kind model, where the authorized participants would handle the Bitcoin. This allowed a broader array of traditional market participants, with many issuers listing JP Morgan as an authorized participant in their latest filings.
Other authorized participants named in filings, however, included market-making firms with experience in the crypto sector, including Jane Street—the former employer of FTX founder Sam Bankman-Fried—and Virtu. Fidelity tapped another crypto trading firm, Cumberland DRW, to buy and sell Bitcoin for its ETF, as well as Jane Street.
Jump absent from ETF frenzy
While Jump had previously been floated as a crypto-friendly firm that could participate as an authorized participant, it did not appear in any capacity on any regulatory filings. One prospective issuer told Fortune that they did not reach out to Jump to participate, nor did Jump reach out to them.
Speaking on the condition of anonymity, a person familiar said the company declined to participate because it didn't make sense from a revenue experience. Jump is also not serving as a liquidity provider or market maker for the ETFs on exchanges, a role distinct from an authorized participant, although the person said that Jump still plans to actively trade the ETFs, should the SEC grant approval.
Others told Fortune that Jump's absence reflected its overall retreat from crypto. Until recently, Jump Crypto—the digital asset unit of Jump Trading—was one of the most active players in the sector. As revealed in an SEC lawsuit, Jump poured millions of dollars into fraudster Do Kwon's Terraform Labs, and the firm also developed a messaging protocol called Wormhole, investing over $200 million into the project after a massive hack. The firm managed to recover the assets.
In the wake of its disastrous crypto bets, including the collapse of Terra's so-called stablecoin, Jump began to pare back its involvement in digital assets. Bloomberg reported that Jump Crypto cut its workforce by roughly half after peaking at around 150 in 2022, and the firm parted ways with Wormhole at the end of 2023, just before Wormhole announced a new funding round at a $2.5 billion valuation. Other Jump alumni spun off crypto projects including the smart contract platform Monad and the blockchain-based data service Pyth Network.
Even with Jump's retreat from crypto, its woes are not over. In late December, a federal judge ruled that fraud-related charges in the SEC's lawsuit against Terraform Labs would go to jury trial. Part of the case will include Jump's alleged involvement in artificially maintaining the peg for its stablecoin.
