Citadel Securities, the largest market maker on Wall Street, is shorting ETH?

Author: Jaleel Gallior

Who is shorting ETH?

Recently, a mysterious institution's asset allocation statement has flowed out. It is worth noting that a "3.1 billion USD short asset" is marked in the "multi-strategy" portfolio.

So the question is? Who is the holder of this $3.1 billion short Ethereum asset?

We found various sources of this asset allocation table and inferred two candidates with the greatest possibility:

First is Bridgewater Fund. The leaked data from some other sources is consistent with the asset allocation table, and Bridgewater CEO Ray Dalio has said he has expressed interest in cryptocurrencies and that he is a BTC maximist, to some extent In line with the logic of shorting ETH.

Another possibility that is most talked about is the Citadel Securities we are focusing on today.

One "big guy" fell down, another "big guy" came

If you still remember the Black Monday in August 2024, the plunge caused by a rate hike in Japan.

Japan's first interest rate hike since the end of the negative interest rate policy has caused the yen to soar against the US dollar, and the reversal of arbitrage trading has triggered large-scale liquidation. The global financial market collapsed instantly, with the Japanese stock market plummeting 9%. The Nikkei index triggered the circuit breaker mechanism twice, setting the largest single-day decline in eight years. The stock markets of South Korea and Taiwan were not spared, and the cryptocurrency market also suffered a heavy blow. Bitcoin once fell below $50,000, and Ethereum plummeted by more than 25%, directly erasing all the gains this year.

But only the impact of the Japanese economy has caused cryptocurrency to collapse, which obviously cannot convince everyone until some old players revealed the inside story.

As the first generation of encryption kings that appeared earlier than SBF, BitMEX Arthur Hayes posted on social media that through channels in the traditional financial field, he learned that a "big player" was clearing out crypto assets.

Although the name is not clearly pointed out, the direction within the community is already quite clear, and it is Jump Trading and its cryptocurrency department Jump Crypto. Since June last year, the U.S. Commodity Futures Trading Commission (CFTC) has begun an investigation into Jump Crypto. In addition to facing regulatory pressure, Jump Crypto is also deeply involved in several controversial incidents. First, the FTX crash caused Jump Crypto to suffer heavy losses. In addition, Jump has also been under the attention of regulators for participating in the TerraUSD stablecoin crash.

As the CFTC investigation deepens, Jump Crypto's young CEO Kanav Kariya announced his resignation, and Jump-related official Twitter accounts have also stopped updating, which seems to announce that Jump is gradually fading out of the crypto industry.

However, one "big guy" fell down, but another "big guy" appeared.

Yesterday, Citadel Securities market makers announced plans to enter the cryptocurrency market making field. For example, the market relay race for traditional financial giants, Jump Crypto withdrew, and Citadel Securities, which also comes from the traditional financial background, chose to take over the baton of the crypto market.

Jump and Citadel, as representatives of traditional financial giants, have similar backgrounds and strategies. Both companies started out as market maker business, Jump has a place in the financial market through high-frequency trading, while Citadel has become one of the world's largest market makers relying on hedge funds and equally high-frequency quantitative analysis. Jump entered the crypto market with a strong technical team, hardware equipment and financial support, and Citadel also had these advantages.

The largest market maker on Wall Street, the Myth of Citadel

Citadel Securities, one of the largest market makers on the NYSE. Daily trading volume accounts for nearly 35% of U.S. stock trading volume, equivalent to the daily trading volume of Shanghai and Shenzhen stock markets, with annual revenue of around US$7 billion. Related Readings: " Making more than 100 million per day, why does Citadel Securities make money so much? 》

In addition to Citadel Securities' market maker business, Citadel's main business started as a hedge fund, managing $65 billion in assets. It is a technical school in hedge funds. While focusing on the fundamentals of investment value, it analyzes the market through a large amount of information and various mathematical models. It is said that billions of dollars are invested in models and hardware every year.

According to LCH Investments, in 2022, the top 20 hedge fund companies generated a total of US$22.4 billion in revenue (after deducting fees), with Citadel, the number one, achieving revenue of US$16 billion in 2022 and hitting a record Hedge fund companies have a new annual return. The latest data this year shows that among all global hedge funds ranking in net income and valuation since its establishment, Citadel still ranks first, and Bridgewater Fund ranks fourth.

Source: LCH Investments

Citadel founder Ken Griffin, who is worth $45.9 billion, ranks 22nd on the Forbes 400 Rich List and 31st in the world. He even made a bold statement: "We do produce money." .

The CEO of Citadel Securities market maker is very similar to the richest man in the currency circle, and is called Zhao Peng.

Compared with the experience of Citadel founder Ken Griffin, Zhao Peng's resume can better hit every Asian: he entered the children's class at the age of 10, was admitted to the Department of Mathematics at Peking University at the age of 14, and then went to the University of California, Berkeley to pursue his doctorate degree .

In 2006, Zhao Peng joined Citadel, and with his outstanding mathematical talent, he quickly made his mark. By 2017, he took the position of CEO and became one of the most trusted people founder Ken Griffin.

During his four years as CEO, Zhao Peng has five times the net revenue of Citadel Securities, a growth rate that is almost unimaginable. Under his leadership, Citadel Securities not only gained a strong position in the market, but also brought the company's profitability to an unprecedented level.

Zhao Peng's name also became synonymous with the pride of heaven in the study abroad circle more than ten years ago. Related reading: " Citadel Securities CEO Zhao Peng: The peak of Chinese on Wall Street, life is cheating when you are ten years old "

According to the recollections of international students at that time, in the old Sichuan restaurant in Chinatown, international students were eating Mao Xuewang while talking about Zhao Peng: "At the Chicago landmark lakeshore, he bought two of them from Lake Michigan in one fell swoop. The luxury apartment is built and opened, with a total value of over 10 million US dollars. "They all hope to become the next Zhao Peng.

Citadel's "Dark Crossing Chen Cang" with Sequoia and Paradigm

Citadel officially entered the currency circle much later than its competitors. After all, Jane Street and Jump Trading began to establish digital asset businesses in 2017 and 2021 respectively. It seems that due to regulatory issues, Citadel's connection to the crypto market has been going on "underwater".

In 2021, there was a very outspoken event in the currency circle. A auction by Su Shibi, auctioning a 1787 version of the United States Constitution. At that time, 1,700 crypto players formed a decentralized organization called ConstitutionDAO. They crowdfunded a total of 43 million US dollars through social media to auction the US Constitution and derived the PEOPLE coins.

But unfortunately, they did not successfully capture the constitution, and the person who bids the most is the founder of Citadel, Ken Griffin.

In 2022, the billionaire accepted the first external investment for Citadel Securities, completing a $1.15 billion financing at a valuation of $22 billion. The leading investors are old acquaintances in the crypto industry, Sequoia Capital and Paradigm.

Sequoia Capital partner Lin Junrui will join the board of Citadel Securities, and Paradigm's Lianchuang Matt Huang said it will work with Citadel Securities to expand its technology and expertise to more markets and asset classes, including crypto assets. Despite this, in order to avoid regulatory issues, Griffin still claimed when facing the media that Citadel Securities was not involved in cryptocurrency trading for the time being.

However, such an answer obviously did not conceal the traces of Citadel's already quietly layout. It was from that year that Citadel officially began to test the crypto industry and established a special crypto business department.

First, he mobilized Jamil Nazarali, global business development director at Citadel Securities, to become the CEO of Citadel's crypto business, and began to cooperate with another top market maker Virtu Financial, fund giants Schwab Financial and Fidelity to start working on digital asset trading and brokerage businesses.

Then in June 2023, the cryptocurrency trading platform EDX Markets jointly launched, officially launched. Jamil Nazarali is the CEO. The trading platform focuses on "non-custodial" and "retail investors", and the trading targets are only limited to Bitcoin, Ethereum, and Letter. There are four types of coins and Bitcoin cash.

In addition to Jamil Nazarali, Citadel has also cultivated many elites closely related to the currency circle. For example, former president Brett Harrison, who left FTX US due to management issues, also served as technical director at Citadel Securities, bringing a lot of technological innovations to the company.

However, Griffin's attitude towards cryptocurrencies has always been contradictory. At first, he had publicly stated that he was cautious about cryptocurrencies and believed they had no real value. In a recent interview, he admitted that he was sorry that he did not invest in Bitcoin in early stages. If he could see a clearer value, he might have bought these assets long ago.

The reason why Citadel Securities entered the crypto field is not as complicated as we think. The political "station pair" further deepened his connection with the crypto world. Trump's election as president, especially his support for the crypto industry, has allowed many traditional financial giants, including Griffin, to see the huge potential of crypto. Like most crypto-industry giant whales, Griffin also firmly supported the Republican Party during the 2024 election. He was one of the top five Republican donors in the past election cycle, second only to Elon Musk.

Citadel's shortness has gone from the stock market to the currency circle

Going back to the topic we discussed at the beginning of our article, why is the institutional asset allocation statement that holds "3.1 billion US dollars of short assets" suspected to be from Citadel?

In addition to its recent moves in the crypto industry, Citadel's name is always closely linked to "short selling". There are many rumors about them short selling in the market.

As early as during the stock market crash in 2015, there were rumors that overseas short selling forces were one of the culprits of the sharp drop in A-shares. Because the China Securities Regulatory Commission checked many accounts at that time and suspended a number of trading accounts suspected of affecting securities trading prices or other investors' investment decisions.

One of them is inconspicuous: Sidu (Shanghai) Trading Co., Ltd. This Sidu Company, in the national corporate credit information disclosure system, shows that it is a wholly foreign legal proprietorship, and its shareholder is Citadel. Later, after five years of investigation and negotiations, Sidu finally agreed to pay US$100 million to reach a settlement with Chinese regulators. At that time, Zerohedge, a well-known overseas financial blog, disclosed that Citadel was closely linked to the Federal Reserve and often held secret meetings, which was actually a tool for the Federal Reserve to control market stability. They use high-frequency trading and other means to push up the US stock market.

Let’s look at 2021. When Robinhood banned retail trading during GameStop (GME) stock market crash, Citadel’s name once again appeared at the center of many doubts. Retail investors believe that Citadel manipulated the showdown between retail investors and institutions through financial support for Robinhood. Although Ken Griffin denied the allegations at the hearing, the close ties between his company and Robinhood still kept the allegations from being settled.

You know, Citadel Securities is not an ordinary market maker. Its relationship with Robinhood is ostensibly a customer-supplier relationship, but from the back, Citadel provides Robinhood with a large amount of order flow. All of this was exposed in the GameStop incident. As Citadel paid tens of millions of dollars to Robinhood to execute these transactions, it naturally became the "master behind the scenes" in the minds of retail investors.

In fact, Citadel's short-selling operations over the years have long made it a "invisible manipulator" in the market.

Even in 2023, Terraform even sued Citadel for possible involvement in shorting operations on UST, which eventually led to UST's derivation in May 2022, requiring Citadel Securities to provide some key transaction counts. Even Citadel firmly denies any direct connection to the UST crash.

"No wonder the trend of GME's stock price is so close to ETH," a community member pointed out that Citadel Securities plays an important role in it, such as using the same strategies and techniques to make the market. Indeed, ETH has been moving almost the same as GME’s stock price since July 2024.

Above: ETH price trend; below: GME price trend

It is no wonder that Citadel Securities has been suspected to be one of the institutions that shorted ETH recently.

But then again, as a top hedge fund, there is also the possibility of shorting ETH to achieve risk hedging while holding a large amount of ETH on the one hand. Thinking from this perspective, perhaps this is also a good thing. After all, the spot they hold is the main position, and short selling is just an auxiliary strategy, and the purpose is to ensure the steady appreciation of assets.

This also indirectly proves the widely circulated rumors of "ETH big dealership exchange". The giants on Wall Street are gradually building positions and becoming new crypto dealers. The game and competition among crypto market makers are still continuing.