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.