Jane Street's 10 AM: Are Wall Street Giants Suppressing Bitcoin Prices via ETFs?

Introduction

10 AM—a time slot that has served as a benchmark for the Asian crypto trading market over the past few months—has once again ignited market discourse, pulling it from the liquidity freeze of a bear market back to a boiling point, following the disclosure of a U.S. lawsuit.

It all started with Jane Street Capital, a top-tier Wall Street market maker founded in 2000. The market accused the firm of utilizing the spot ETF Creation & Redemption mechanism to execute a months-long "sleight of hand," deploying directional ETF arbitrage tactics between the spot and derivatives order books.

This covert game, dubbed the "10 AM Manipulation," turned inherently neutral liquidity into a breeding ground for risk-free arbitrage by top-tier institutions. It wasn't until the lawsuit struck like a thunderbolt, forcing the market maker's suppression algorithms to shut down, that the crypto market finally woke up from this artificially manufactured bear market illusion. What followed was a suppressed, epic, and cascading Short Squeeze—within a mere 24 hours, over $240 billion in market capitalization was violently generated, wiping out short sellers across the network.

Market behavior shifted dramatically post-lawsuit, completely revealing the underlying hand of this liquidity war.

Jane street on the different street

Market behavior shifted dramatically following the lawsuit, completely exposing the underlying cards of this liquidity war.

Today, the billion-dollar question everyone in the market is asking is: Did Jane Street suppress the price of Bitcoin?

This question deserves a precise answer—but the most important thing to understand first is that this is not actually a question about Jane Street.

It is a question about the structural characteristics of the Bitcoin ETF architecture, and it applies equally to every Authorized Participant (AP) in the ecosystem.

For BlackRock's IBIT alone, this roster includes Jane Street, JPMorgan, Macquarie, Virtu Americas, Goldman Sachs, Citadel Securities, Citigroup, UBS, and ABN AMRO. The roles of these institutions are deeply misunderstood by the public, and even among seasoned industry veterans. Before drawing any conclusions, this misunderstanding deserves to be corrected.

Regarding APs, the first thing to understand is that they occupy a fringe exception within the regulatory framework of Reg SHO (the SEC's rules regulating naked short selling). Reg SHO requires short sellers to locate and borrow shares before shorting, but APs are granted an exemption by virtue of their contractual right to participate in creations and redemptions.

While this sounds procedural, its practical consequences are massive: Any AP can create shares at will—with no borrowing costs, no capital lock-up traditionally tied to shorting, and no hard deadline to close the position outside of reasonable commercial terms.

This is the gray area: a regulatory exemption designed for orderly ETF market making that, structurally speaking, is indistinguishable from regulatory arbitrage with an unparalleled duration. This exemption is not unique to any single firm. It is a prerequisite for membership in the AP club.

The second point to understand is the capability this exemption grants in terms of portfolio construction

Normally, if IBIT is trading below its Net Asset Value (NAV), you would expect arbitrage buyers to step in, redeem the shares for Bitcoin, and close the spread. But any AP is that arbitrage buyer themselves. They control the plumbing, which means their incentive to close this spread is entirely different from a third-party trading desk without creation/redemption rights.

It sounds complex, so let me use a simple analogy:

• Layer 1: What is normal "spread closing"?

Imagine a blind box on the market (this is the IBIT ETF). Everyone knows the box contains a real Bitcoin voucher worth $100 (this is the NAV). However, due to market panic today, the price tag of this blind box drops to $95. The logic of a normal person is: a smart merchant (arbitrage buyer) will aggressively buy the blind box for $95, go to the official issuer to open it, exchange it for the $100 Bitcoin, and sell it, earning a risk-free $5 spread. Because everyone rushes to buy the blind box for arbitrage, the buying pressure quickly pushes the price back to $100. This is called "closing the spread."

• Layer 2: The AP with a "Monopoly Channel"

But in the real world of Bitcoin ETFs, ordinary trading firms and retail investors are not qualified to go to the official issuer to "open the blind box" (i.e., they have no creation/redemption rights). Only a few privileged major Wall Street investment banks (APs) in the entire market can do this. In other words, APs monopolize the only channel to convert ETFs into actual Bitcoin (they control the plumbing).

• Layer 3: Why don't APs play by the book? (Different Incentives)

If it were an ordinary third-party merchant, seeing this risk-free $5 spread, they would act immediately. But APs are different. An AP will make a much shrewder calculation: "Since only I can open the blind box, what's the rush? If I deliberately avoid pulling the price back to $100, and instead use the illusion of the current $95 low price to go long or short in another casino (like the Bitcoin futures market), I might be able to make $20!"

To summarize: The market originally had an automatic correction mechanism (if it falls too much, arbitrageurs buy to drive the price up). However, because the "only switch" to execute this correction mechanism is in the hands of the APs, and the APs realize that "not correcting and maintaining the spread" allows them to make more money elsewhere, they have absolutely no incentive to pull the price back to a normal level.

Retail investors are waiting bitterly for an army of arbitrageurs to save the price, not knowing that the only arbitrage army (the APs) is standing by, using this spread to extract profits from other markets.

IBIT's short exposure can, in principle, be hedged by going long on spot Bitcoin—but this is not mandatory, as long as the chosen instrument maintains a tight correlation. The obvious alternative is BTC futures, particularly given their capital efficiency.

The key implication here is: if the hedging instrument is futures rather than spot, then the spot is never actually bought. Because the natural arbitrage buyers choose not to buy spot, this spread cannot be closed through natural arbitrage mechanisms.

It is worth noting that the spot/futures basis itself is the core focus of the entire basis trader community, who strive to keep this relationship tight. However, every separation between the hedging instrument and the underlying asset introduces dirty basis risk, which continuously compounds throughout the structure—and under stressed conditions, basis risk is exactly where market dislocations occur.

The final piece of the puzzle involves the SEC's recently approved in-kind creation and redemption. Under the previous cash-only regime, APs were required to deliver cash to the fund, which the custodian then used to purchase spot Bitcoin. This purchasing action was a structural regulator—it forced the buying of spot as a mechanical consequence of creation.

In-kind redemptions completely eliminate this. Now, any AP can directly deliver Bitcoin, and the timing and counterparties for its sourcing are entirely at their discretion: OTC desks, negotiated pricing, minimizing market impact. The broadest interpretation of this flexibility is that APs can maintain derivative positions aimed at capturing funding rates or volatility profits during the time window between establishing the short and completing physical delivery—all while ensuring that each individual step still fits the definition of legitimate AP activity.

And this is precisely the crux of the problem. The beginning looks like normal market-making behavior. The end looks like normal market-making behavior.

It is the intermediate process that is difficult to clearly categorize.

This is not an indictment of any single firm. Every AP on the IBIT roster—and by extension, every AP for every Bitcoin ETF—operates within the same structural framework, enjoys the same exemptions, and therefore possesses the same theoretical capabilities.

Whether any of them exercised this capability in a manner hovering on the edge of coordinated activity is a question that falls squarely within the purview of the "surveillance-sharing agreements" the SEC required when approving the ETFs. Whether these agreements are sufficient to capture behaviors spanning across spot, futures, and ETF markets simultaneously (even including offshore trading venues) remains a genuinely open question.

The short answer is that no AP is explicitly suppressing the price of Bitcoin. What the AP structure can suppress is the integrity of the price discovery mechanism itself. These are not the same thing—but arguably, the latter has far more profound implications than the former. The real question worth asking is not whether a specific firm is the villain. Rather, it is: Does a regulatory framework built for traditional ETFs suit an asset whose entire value proposition lies in not being controlled by these very institutions?

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