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Breaking: CFTC Launches Investigation into Jump Crypto’s Trading Practices

Hassan Shittu
Last updated: | 2 min read
CFTC Launches Investigation into Jump Crypto's Trading Practices

Jump Trading, a major player in both traditional and cryptocurrency markets, has been scrutinized by the CFTC amid regulatory tightening in the crypto space.

Known for its sophisticated algorithmic trading and market-making capabilities, Jump Crypto, the firm’s crypto division, has provided liquidity and fostered new crypto projects. However, setbacks, including significant financial losses and involvement in controversial legal cases, have led to increased regulatory attention.

Jump Crypto Turbulent Years Might Have Attracted the Probe

Jump has long been a prominent player in high-frequency trading. In September 2021, the firm publicly announced its crypto division, Jump Crypto, even though the firm has been active in the crypto space for several years.

Jump Crypto quickly became influential, acting as a leading market maker across various exchanges and providing liquidity for new crypto tokens. The firm also emerged as a major venture investor, setting up an incubation and engineering arm and contributing to projects like Wormhole, Pyth, and Firedancer.

According to sources familiar with the case, the Commodity Futures Trading Commission (CFTC) is investigating Jump Crypto for its activities in the cryptocurrency market. This probe comes after a series of tumultuous years for Jump, marked by high-profile incidents and significant financial setbacks.

In early 2022, Jump Trading’s involvement in the Wormhole platform hack, which resulted in a $325 million loss, highlighted its resilience as the firm swiftly covered the losses. Later in 2022, the collapse of FTX revealed that Jump, a prominent market maker on the exchange, lost nearly $300 million, as detailed in Michael Lewis’s book “Going Infinite.”

The Securities and Exchange Commission (SEC) investigated Jump Crypto in November last year, alleging that the firm profited over $1 billion by secretly purchasing large amounts of UST to stabilize its value. The SEC claimed that Jump Crypto received favorable terms on LUNA loans, a deal made shortly after UST and LUNA destabilized in May 2021.

Further controversy arose during the SEC’s February 2023 lawsuit against Terraform Labs and its founder, Do Kwon, the creators of the failed TerraUSD stablecoin. The SEC’s complaint alleged that Jump Trading had propped up Terra’s peg during a near-collapse in 2021. Although the SEC accused Terraform and Kwon of fraud for falsely claiming the peg was naturally restored, no charges were filed against Jump.

In March 2023, the Justice Department filed criminal charges against Kwon, again referencing Jump as a firm that helped maintain Terra’s peg, but without alleging any wrongdoing by Jump.

CFTC Investigation and Regulatory Context

The Commodity Futures Trading Commission (CFTC) has initiated an investigation into Jump Crypto’s cryptocurrency activities, marking the latest instance of federal scrutiny of the firm. This probe comes after a turbulent period for Jump.

Known for its expertise in algorithmic trading, Jump Trading has scaled back its crypto operations, spinning off two high-profile projects and opting out of the spot Bitcoin ETF race. Despite these adjustments, the firm remains under the watchful eye of regulatory bodies.

CFTC Chair Rostin Behnam, speaking at the Milken Conference in May, indicated that cryptocurrency firms should brace for “another cycle of enforcement actions.” This statement aligns with the agency’s current focus on Jump’s derivatives trading activities, which span both crypto products and traditional commodities.

Regulatory agencies like the CFTC and the Securities and Exchange Commission (SEC) routinely conduct fact-finding missions for companies within their jurisdiction. The CFTC’s investigation into Jump is part of these efforts and is not evidence of wrongdoing.