Behind Jump Crypto's Crazy Sell-off: The Cause May Be Related to the $4.47 Billion Settlement in the Terra Case?

Author: Climber, Golden Finance

On August 5, the global financial market experienced a "Black Monday," with the cryptocurrency market's decline closely following "312." The recently approved Ethereum ETF also failed to mitigate the damage to ETH, which plummeted to a low of $2,100 under the continuous selling pressure from market maker Jump Crypto. Many in the community and analysts view this behavior as one of the reasons for the overall crash in the cryptocurrency market.

In fact, Jump Crypto's selling behavior has been ongoing and is nearly "liquidation-style." On-chain data shows that over the past 10 days, the cumulative value of ETH sold has exceeded $300 million, with the accumulation of ETH involving the unstaking of ETH from Lido and multiple transfers from other wallets. Currently, their marked position in stablecoins accounts for over 96%.

There are various speculations regarding Jump Crypto's selling behavior. Some suspect it is a liquidation caused by the CFTC investigation, while others believe the company is converting assets into stablecoins to mitigate economic risks. Given Jump Trading's tradition of high confidentiality, after reviewing past information, I lean towards the inference that Jump Trading preemptively cut ties with the Jump Crypto department to avoid being embroiled in the $4.47 billion settlement dispute related to the Terra case.

Jump Crypto's "liquidation-style" selling, various speculations abound

The earliest abnormal transfer record marked as Jump Trading's on-chain wallet occurred on July 17, when an address starting with 0x401c transferred 9,998 ETH to the Jump Trading address, valued at approximately $34.4 million.

Subsequently, by comparing the historical token balance records on Arkham Intelligence, it was found that the company had been selling its held Ethereum since July 19, rather than just over the past weekend.

Spot On Chain data also shows that from July 25 to August 5, the wallet marked as Jump Crypto deposited a cumulative value of $279 million in ETH to CEX exchanges.

Additionally, according to public information, Jump Trading has previously engaged in the behavior of unstaking large amounts of ETH from Lido and transferring them in bulk from other addresses.

On-chain analyst Yu Jin monitored that from July 25 to August 4, Jump Trading redeemed 83,000 wstETH for 97,500 ETH, of which 66,000 ETH flowed into exchanges.

As of the time of writing, their wstETH holding address still has 37,600 wstETH untransferred. Meanwhile, 11,500 stETH in the redemption ETH address is being redeemed for ETH; 20,000 ETH in the address transferring to exchanges is also entering exchanges in batches.

Moreover, it has also deposited nearly $300 million in ETH to various centralized exchanges, including top players like OKX, Binance, Coinbase, and Gate.io.

Currently, Jump Trading's stablecoin position accounts for over 96%, with a total value of $324 million. Tracking agency data also shows that Jump Trading has been continuously cashing out. Since July 24, when Jump Trading began selling ETH, it has withdrawn 617.8 million USDC from Binance and deposited 558.2 million USDC into Coinbase. The USDC deposited into Coinbase may be exchanged for USD at a 1:1 ratio.

There are various speculations regarding Jump Trading's selling and cashing out behavior.

The CEO of crypto investment firm Cake Group stated that the recent large-scale sell-off in the crypto market may be due to Jump Trading, either because the traditional market required additional margin and liquidity or due to regulatory reasons exiting the cryptocurrency business.

Mads Eberhardt, a senior crypto analyst at Steno Research, believes that Jump Trading has been borrowing yen to fund its high-frequency trading business, perhaps to maintain sufficient liquidity or acquire crypto assets due to the soaring yen to dollar exchange rate. The cost of repaying loans denominated in dollars has significantly increased, and their potential collateral may also have been impacted, leading Jump Trading to possibly receive a margin call.

It is worth mentioning that BitMEX co-founder Arthur Hayes spoke out at this time, stating that he learned through traditional financial channels that a "big player" had collapsed and sold all its crypto assets, and this "big player" is speculated by the community to refer to Jump Crypto.

The $4.47 billion settlement in the Terra case may become the biggest burden

Jump Trading is a Chicago-based financial firm known for high-frequency trading, which later established Jump Crypto to focus on cryptocurrency business. However, in attempting to restore the fixed exchange rate of TerraUSD (UST), it made huge profits through secret trading but ultimately failed to prevent the collapse of UST, resulting in a loss of approximately $40 billion for global investors. This event also put Jump Trading in a reputational crisis.

As the Terra case progressed, the SEC began investigating whether the president of Jump Crypto had entered into secret agreements with Do Kwon during the UST collapse, with Jump Crypto being accused of manipulating the price of the stablecoin TerraUSD to earn $1.28 billion in profits. At that time, Kanav Kariya refused to answer questions on this matter.

Although in April and June of this year, Jump Crypto was not found to have engaged in illegal activities under the investigations of the SEC and the Commodity Futures Trading Commission (CFTC), nor was it accused of any wrongdoing, Jump Crypto president Kanav Kariya quickly announced his resignation, ending his six-year career at Jump Trading.

Whether Jump Trading has other illegal secrets with Terraform Labs remains unknown, but a whistleblower from Jump Trading had previously assisted the SEC in filing a case against Do Kwon, and recently a Montenegrin court has ruled that Do Kwon will be extradited back to South Korea.

Moreover, at the end of May this year, Terraform Labs and Do Kwon agreed to settle the securities fraud case, with a settlement amounting to $4.47 billion.

Previously, FTX reached a $12.7 billion settlement agreement with the CFTC, and Binance's settlement agreement with the CFTC includes CZ paying $150 million to the CFTC, while Binance will pay $2.7 billion to the CFTC. However, it is evident that Terraform Labs and Do Kwon are currently struggling to pay this fine.

After the settlement agreement was reached, Terraform Labs CEO Chris Amani announced that the company plans to dissolve its business and request the community to take over operations. Additionally, the company is considering selling its four business units.

In light of this, we cannot rule out the possibility of the SEC continuing to hold other responsible parties accountable in the Terra case, and Terraform Labs and Do Kwon may not be able to avoid disclosing more insider information about Jump Crypto to mitigate their culpability, especially since Jump Trading has a precedent of reporting the former.

Furthermore, the CFTC chairman publicly stated in May that the cryptocurrency industry faces an inevitable wave of enforcement actions, and a "cycle of enforcement actions" will emerge within the next six months to two years.

Combined with previous speculations, it may indeed be that this "big player," Jump Crypto, is on the verge of collapse.

On the other hand, Jump Trading originally had a wide range of business operations and placed great importance on confidentiality. The Jump Crypto department is just one aspect of it, and preemptively cutting ties can help mitigate losses and avoid greater reputational and financial damage.

According to Chapter 7 bankruptcy liquidation regulations in the United States, after a company files for Chapter 7 bankruptcy, the court appoints a bankruptcy trustee in the liquidation case. All states in the U.S. allow debtors to retain necessary property (i.e., exempt property). The bankruptcy trustee will collect the debtor's non-exempt property, sell it, and distribute the proceeds to creditors. At the end of a Chapter 7 case, both dischargeable and unpaid debts will be wiped out.

Conclusion

Jump Crypto chose to sell a large amount of ETH at the most unreasonable time. The approval of the U.S. Ethereum ETF, bullish market expectations, interest rate cuts, and the downturn in the cryptocurrency market all indicate that this is not the right time for liquidation. Such a large-scale sell-off for a business unit backed by Jump Trading likely indicates that it is facing a "survival crisis." If it were merely for arbitrage, it clearly does not align with its previously promoted investment strategy.

The $4.47 billion settlement is also clearly unrealistic for Terraform Labs and Do Kwon at this time. Under various pressures, U.S. regulatory agencies like the SEC and CFTC will need to seek "second responsible parties." If further culpability of Jump Crypto is uncovered in the future, it would undoubtedly pose greater trouble for Jump Trading.