How Jane Street Rigged Crypto
531: State of The Union, Citadel's AI Rebuttal
Morning,
It’s a three post week.
Tomorrow morning we will drop a review of equity position and stock picks for paid subs. I added and cut some positions this week so we will walk through those specifics tomorrow morning around 7:30am before the weekend.
I also owe you guys a new episode of Risk On (I am aware). Been busy building out a new e commerce brand and have been perpetually sick for like a month. On the mend now so should be able to get back to it.
The odds of a strike on Iran still sit at about
Yesterday Cuban coast guard forces opened fire on a US registered speed boat and killed 4 people (claiming it was some sort of infiltration force). Marco Rubio and others have vowed retaliation. Polymarket shows just 7% chance of a strike by the end of next month. Seems light to me, wouldn’t be surprised if we pulled a Maduro on them soon lol.
On the heels of the Citrini Research post that dropped this week and rattled markets due to fears of AI impacts on various sectors, markets have moved aggressively northward mid week.
Tuesday morning Terraform Labs dropped a lawsuit against Jane Street, the secretive and highly profitable quantitative trading firm that former FTX CEO Sam Bankman Fried once worked at.
The report alleged that Terraform’s bankruptcy administrator is accusing Jane Street of using insider information to profit from, and potentially accelerate, the collapse of the Terra ecosystem in May 2022.
Some of us suspected this (including ZeroHedge) but what’s more interesting, and what we will discuss today is Jane Street’s potential role in crypto market manipulation since then.
To make the week even more interesting, Citadel Securities, one of the largest market making firms in the world led by size lord Ken Griffin, has openly challenged the core premise of the Citrini report that we covered Tuesday morning. This report led to immediate sell offs on Wall Street earlier in the week as different sectors reacted to a future where AI reshapes the global economy.
New drops from Anthropic’s Claude have amplified the fear, with one of the more notable drops automating many of the functions native to investment banking roles.
Tomorrow we will drop a review of equity picks and opportunities given the chop this week for paid subscribers. I cut some positions and added some new ones yesterday, we will walk through each in the morning.
Let’s start with Jane Street.
Jane Street Lawsuit & Crypto Manipulation
Jane Street was founded in 1999/2000 in New York City by Tim Reynolds, Rob Granieri, Marc Gerstein, and Michael Jenkins. The firm has long operated in the shadows of global markets, profiting from speed, scale, and information advantages.
Their specialty is algorithmic trading and ETF market making and their stereotype is nerdy 20 year olds from MIT and other elite schools who then go on to found crypto companies that decimate global markets.
The lawsuit claims these trades allowed Jane Street to generate significant profits while contributing to the destabilization that ultimately triggered TerraUSD’s death spiral and blow up.
The filing names the firm and several individuals, arguing that the activity went beyond normal market making and crossed into misuse of confidential information.
It was rumored a former intern was the one who created a chat group for the exchange of insider information back to Jane Street.
Dude I lost literally all my money
— former coworker of mine who bought LUNA
The allegation is not that Jane Street caused Terra to fail on its own, but that it used advance knowledge of Terraform’s internal liquidity moves to protect itself and profit while accelerating the collapse (orchestrating a house fire and then offering both water and a fire extinguisher as it is starting).
In early May 2022, Terraform quietly pulled a large amount of UST liquidity out of a critical pool that was supporting the stablecoin’s peg. That move was not publicly announced and materially weakened the system’s ability to absorb selling pressure.
I won’t even start to go down the FTX Anthropic rabbit hole but you can find it on X right now (TLDR Jane Street reportedly bought a shit ton of Anthropic from FTX post blow up that has netted them a ridiculous return).
Jane Street knew this fat daddy withdrawal was coming and moved almost immediately afterward, exiting a large UST position before the broader market understood what was happening. By pulling liquidity and unwinding exposure ahead of others, Jane Street allegedly avoided losses and positioned itself on the right side of the trade as confidence in UST evaporated.
Because Terra’s peg dependded heavily on that liquidity pool, the sudden imbalance triggered panic in retail, rapid de pegging, and a death spiral in both UST and Luna.
The Terra/Luna collapse wiped out roughly $40 billion–$45 billion in market value.
Jane Street has denied the allegations, calling the suit baseless and arguing that Terraform’s collapse was driven by its own internal decisions rather than any outside trading activity.
Some people on X are reporting the company has also deleted all of their tweets on X as well (unclear if they made any posts to begin with to be fair).
Still, Jane Street’s track record stinks to high hell and now people are beginning to associate the firm with Bitcoin’s steady sell off since the 10/10 liquidation event.
Why are people doing that?
Bitcoin’s price is highly sensitive to shifts in liquidity preference among large institutional participants (a downside of recent years).
If a shady firm with deep market making ties (and a now obvious sketchy former past) is suddenly cast in a negative light, some large holders and algorithmic flows are going to pull back, tightening bid/ask spreads and exacerbating the drawdowns that cause everyone to lose their minds.
In the charts people have been pointing to orderly and scheduled drawdowns that seem unexplainable in a healthy market.
While ZeroHedge would tweet about it almost every week, the “10am Slam” became a well observed phenomenon in which crypto markets would routinely dump at 10am ET almost daily for the past year or so (except when Jane Street was being investigated).
This is generally a period of low liquidity in the market making it a prime opportunity to drive prices lower. It’s predatory for sure. But not surprising.
Curiously enough,. after the lawsuit dropped, so did these slams at 10am (we will have to see if today is the same).
If you hang around crypto twitter long enough, eventually you come across the classic theory that the market is being manipulated.
If my bags aren’t up → must be a rigged market
In the Gamestop era, the same theories were made about equity markets, alleging that Robinhood and Citadel were working in tandem to suppress price, delay outcomes, and make things appear different than they should be in the market.
All markets are manipulated to some extent. Nowadays you have:
Liquidity targeting - You get large players trading during thin liquidity windows where small pressure creates outsized moves. Market makers widen spreads or pull quotes during volatility, which can amplify moves (Jane Street appears to have capitalized on this for the past several months in crypto markets)
Stop loss and liquidation harvesting - Known leverage and stop clusters turn minor pushes to big forced, cascading selloffs (we saw this at scale on 10/10)
Speed and information asymmetry - HFTs can react in literal microseconds, positioning ahead of slower participants and definitely ahead of you on your brokerage or Iphone lol. If you need a crash course on this read Flash Boys about IEX.
Order flow internalization - This is big in recent years, retail flow is seen and hedged by big players before it hits public markets, nothing you can really do about this
Derivatives driven reflexivity - Funding rates, options gamma, and dealer exposure mechanically pull spot prices
Consolidation - Fewer firms facilitating market making and majority of transactions
So is it “manipulation”? Is it “rigged”?
In short yeah, pretty much. But it’s a semantics game of is it “rigged” or is this just how markets function now with the acceleration of technology, HFT, and big institutions.
Jane Street got caught doing something similar in India. India’s SEBI ((Securities and Exchange Board)) already accused them of index manipulation
But the reason why this unsettles so many in crypto and with Bitcoin, is that this sector originally started as the anti institution movement. The whole point was to circumnavigate institutions, middle men, and banks.
Now it’s evident that with the arrival of Wall Street, major trading firms, and other large entities, the market’s movement is not as organic as some hoped for.
My take?
You have to adapt. Which was the theme of the post on AI Tuesday. The pending Clarity Act is hopefully going to help curb some of this behavior (at 69% chance of passing this year), but at the end of the day it’s never going to stop entirely.
Jane Street isn’t the first and they sure as hell won’t be the last to act in a nefarious manner in crypto markets. Complaining about it doesn’t do much. If you KNOW there is manipulation then you need to act accordingly.
On a long enough timeline it all comes to the surface. This is why HODL (at least in regards to Bitcoin) is a strategy that outperforms those who try to short term trade. You won’t bully or beat the big guys. So why try?
Play the same game they are playing. It’s a duration and volatility test, designed to get you to sell at the worst possible time or hold when you should be cutting.
You can’t drive price but you can buy when they’re shaking out retail and driving sentiment to all new lows. Is Jane Street SOLELY responsible for the state of crypto markets?
Probably not, but they likely have played a major role in market volatility and movement for a number of years now. I don’t know if this correlation people are drawing between the lawsuit and Bitcoin/Crypto’s recent pop is real, but this recent bounce is interesting. Bitcoin ETFs bought over $500m of Bitcoin yesterday, let’s see how the rest of the week plays out.
I maintain my stance that:
This “cycle” might behave differently than past ones
This bear market will be quicker than previous ones
More on crypto next week. Worth mentioning Jane Street is VERY active in the Silver and Gold markets as well…..
Citadel’s Citrini Rebuttal
Citrini Research dropped a post earlier this week that triggered sell offs across sectors. Everyone, it appeared, suddenly was factoring in mass job loss and economic disruption from AI.
In their rebuttal that came out this week, Citadel pushed back on the Citrini Research idea that AI is likely to trigger mass unemployment or a self reinforcing economic collapse.
Their view is grounded in historical patterns of technological adoption where most major innovations (from electricity to computers) supplemented human labor and expanded productive capacity rather than replaced the demand outright.
Citadel argues that AI today is still in the early stage of the adoption curve and that widespread job displacement is far from imminent. Good news for those of us with adult daycare email jobs.
Their pushback is essentially that while AI adoption is clearly accelerating, the economy hasn’t hit the point where labor is being displaced faster than demand can form. One of the key reasons they point to is the massive buildout happening underneath the hood.
Citadel notes that hiring tied to this generational buildout, from engineers to construction, energy, and support roles, remains strong. In their view, this is evidence that AI is still creating demand in the real economy and not hollowing it out.
Put simply, their argument seems to be that the infrastructure layer is acting as a buffer.
Which makes sense.
While the Citrini exercise was good fun and I still think something like it could play out, I find myself leaning more towards the views of The Kobeissi Letter and Citadel.
Doesn’t mean Citrini is wrong. I just think it means the timing might be off. The risks they outline are real, but they likely play out over a longer horizon and through second and third order effects rather than an immediate break that sparks a chaos ridden hellscape of an economy where people need to start onlyfans accounts in order to afford bug ramen and salami.
Let the AI bull run continue for the sake of our bags.
Market & Crypto News
Nvidia NVDA 0.00%↑ reported $68.1 billion in quarterly revenue and $1.62 in earnings per share, both well above expectations, and guided to roughly $78 billion in revenue next quarter - stock was mixed in after hours trading and is down 2% on the day at the time of this post
26% of the 7.5 million unemployed people in the US actively searching for work have been looking for more than six months (Financial Times/Unusual Whales)
Taylor Lindman has been officially appointed as Chief Counsel of the
SEC Gov Crypto Task Force. He spent 5 years as a key part of the Chainlink Labs
MercadoLibre MELI 0.00%↑ has now achieved 28 consecutive quarters of more than 30% YoY revenue growt (Qualtrim)
@ZachXBT on X released a report alleging that Axiom employees engaged in insider trading
The Korea Composite Stock Price Index KOSPI is up almost 50% YTD
MetaMask and Mastercard launch the MetaMask Card across the US (CoinTelegraph)
Global News
Nuclear talks between the US and Iran reportedly ended after just three hours
President and CEO of the World Economic Forum, Børge Brende, has resigned due to Epstein Files (Polymarket)
The FBI arrested a former U.S. Air Force Major who spent over 26 months in Beijing training Chinese fighter pilots
Oil prices are currently down, likely factoring in the potential for Iranian supply in the event of a deal being struck
Special shoutout to Army Chief Warrant Officer 5 Eric Slover of the 160th Special Operations Aviation Regiment who was awarded the Medal of Honor during the 2026 State of the Union address. He also successfully mogged everyone in attendance.
Guy is an absolute patriot and giga chad armed forces size lord.
He received the medal for his actions as a Chinook helicopter pilot during the January U.S. raid in Venezuela that resulted in the capture of Nicolás Maduro. After taking multiple armor piercing rounds from enemy machine gun fire to his legs, he managed to safely release the troops onboard and then proceeded to reposition the Chinook so his door gunner could delete some birthdays with haste and complete the mission.
In case you didn’t feel like working out or getting up early today…..
See you guys tomorrow morning morning for our stock picks and review of some recent plays.
Discord link is HERE for those who would like to join. Be warned it is unhinged.
Andy
Good write-up on Jane Street. Btw, one of the open secrets was that SBF was using a lot of tricks of the trade he learned at Jane Street to do similar market manipulation at FTX pre blow-up.
Fascinating stuff about Jane street, most of it over my little goldfish brain but it’s making me feel better about my buying conviction at least