Is Wall Street Secretly Suppressing Bitcoin's Price?

For years, Bitcoiners have sold the same simple pitch: 21 million coins, no bailouts, no “paper trading” games Wall Street is famous for — just pure price discovery in the open.

And yet, in the middle of this bear market, a new paranoia has taken hold across crypto Twitter: What if Wall Street is running the same old playbook anyway — and Bitcoin’s price is getting muted by the very ETF plumbing that was supposed to supercharge adoption?

That’s the question Coinage dug into with ProCap Financial CIO Jeff Park, whose recent posts about ETF mechanics — and the role of “authorized participants” like Jane Street — have gone viral as traders look for explanations that go beyond “number go down.” But Park is pushing back on connecting the dots so easily into one big conspiracy many people want it to be.

“I don't think that the ETF complex is responsible for the price action ... we're observing this bear market,” he said, re-directing some of the blame back at long-term whales who have been dumping spot Bitcoin rather than authorized participants (APs) who directly handle the plumbing around Bitcoin ETFs.

"I don't view Jane Street or any particular APs ... to be responsible for suppressing Bitcoin price," he expanded. "However, I do think you can also simultaneously believe that APs play an outsized role in the price discovery mechanisms for which they can bring different factors and perhaps create some path dependencies that might not have been possible before."

In other words, the ETF machine is working as designed. It’s just that the design comes with tradeoffs that Bitcoiners may not have fully considered beyond the idea of a few entities handling the buys and sells of spot bitcoin on behalf of ETF customers. And at the center of the nuance is a reality Bitcoin maxis rarely want to admit out loud: Liquidity is powerful — but it isn’t free.

Case in point: Authorized participants like Jane Street get to operate in an interesting gray area that includes a different set of rules than other market participants. As Park explains, they can temporarily hedge and manage risk in ways retail investors don’t fully see.

"We all know every Bitcoin ETF in the end owns physical spot Bitcoin exposure. It's not created using futures. It's not created using call-put synthetics ... every Bitcoin ETF owns spot Bitcoin on the blockchain," he said. "However, in the middle of that process, in this kind of weird purgatory area for which you don't have a lot of clarity nor transparency around how they are able to hedge their exposure, or how long they can hold certain kinds of exposures without there being like a term limitation. That's the kind of stuff where I think people genuinely have questions about, and I think rightfully so."

And to be fair, there are new allegations that have centered a lot of the scrutiny on Jane Street being the main target of the ire directed toward Wall Street power players. Last year, pressure was already mounting on Jane Street after India's market regulator barred the firm from trading in the country after allegedly manipulating prices in underlying shares using the derivatives market.

Then this week, the estate handling the Terraform Labs bankruptcy made another damning allegation and sued Jane Street for insider trading that may have played a role in the $40 billion implosion in 2022. The complaint alleges that the trading firm essentially executed trades on information that was passed back from Terra insiders in a group chat that included a former Terra intern turned Jane Street employee. Jane Street did not respond to Coinage for comment.

A Twitter article pairing the allegations in that complaint with other allegations pointed towards Jane Street's Bitcoin trades racked up more than 4 million views this week by making the point that Wall Street players financializing Bitcoin via the ETFs has essentially removed the core selling point of Bitcoin: That there will only ever be 21 million coins.

But as Park explains, that take would oversimplify the way markets work and also overlook the boost in liquidity that has come to Bitcoin since the ETFs. That said, it does still leave the uncomfortable question of grappling with what the ETF plumbing allows these authorized participants to do.

"For example, if I'm shorting something but I'm buying the long using futures, the futures don't require my full funding of that spot notional. I only have to post anywhere from like from 3 to 8%, so that capital multiplier essentially becomes like a weaponized tool," he said. "And that's why the role of APs, when you can actually do some things that no one else can, really does create this uptick of possible misgivings, even if it may not be true just because of that special privilege ... and that's the part that I think people have some unnerving about."

And to be fair, this isn't particularly unique. Large players have always enjoyed certain market advantages over smaller players in market structure. This was particularly evident during the infamous Robinhood and GameStop saga in 2021. In that market failure, retail traders were blocked from buying GameStop stock in what was a record short squeeze that many saw as a move that was taken to help larger players, and saved Robinhood from self-inflicted decisions.

Similar to what happened in the GameStop saga, there is an uncomfortable feeling among retail traders that once again, the plumbing has been rigged to allow larger players to capture more of the upside at the expense of the "little guy." But Park mentioned things aren't quite as dire as many think — particularly for those who hold assets for the long-term. Eventually, he says, demand for Bitcoin does trickle into spot moves. But can retail band together like they did around GameStop shares?

"It can be possible —and the possibility comes from a way to achieve capital efficient leverage. So it's why I still believe having call options and put options on the Bitcoin ETF complex was the most momentous milestone to have happened for individual retail investors, because it gives you a lot more of an edge in ways that you can now compete," he said. "Institutions will always beat retail because they have one significant advantage, they have scale and they have size and size matters, especially in markets that are deep and liquid."