According to reports, Jane Street and Jump Crypto, two of the most important cryptocurrency market makers, are reducing their trading activity in the US, which might have a significant impact on the market’s liquidity. An analyst at Kaiko claims that the exit of these two companies might impair the market’s already precarious liquidity flow, which has been struggling to recover since Alameda’s failure last year. Despite a rebound in cryptocurrency prices, market depth, a crucial indicator for evaluating exchange liquidity, decreased by more than 50% after the FTX crash and has yet to recover.
Although some people may not be surprised by the news, it is worrying that the industry has taken so long to fill the void left by Alameda. Although there are other participants in the cryptocurrency market outside the traditional market makers Jane Street and Jump, their exit might have a substantial effect on liquidity. However, given that the problem only affects the US market, crypto-native market makers seem to be less concerned about the situation.
Finding OTC liquidity for US counterparties will be the major challenge, according to Zahreddine Touag, Head of Trading at Paris-based market maker Woorton. The short-term effect on exchanges will be less liquidity, he claims. However, the long-term consequences of the US’ rigid approach to crypto legislation may be much worse than any immediate tremors.
Because it costs less money to trade an asset when there is more liquidity, the market might become more volatile. Credit concerns may result from this and the highly leveraged character of the cryptocurrency markets, potentially affecting all financial sectors. As a result, the exit of Jane Street and Jump Crypto may have significant effects on the crypto market as a whole.