Bitcoin’s Wednesday rally has reignited debate over the role of Wall Street market makers in spot Bitcoin exchange-traded funds, after online speculation linked the price move to a lawsuit involving quantitative trading firm and liquidity provider Jane Street.
Posts circulating on X claimed that Bitcoin’s roughly 10% climb over two days coincided with the disappearance of a purported intraday selling pattern, suggesting that legal action against Jane Street had altered market behaviour.
Analysts and ETF specialists, however, said the focus on a single firm obscures a more complex set of market mechanics underlying how spot Bitcoin ETFs operate.
Bitcoin ETFs track the asset's spot price, but the creation and redemption process allows institutional middlemen to meet demand without having to buy or sell Bitcoin on public exchanges.
Jeff Park, chief investment officer at ProCap and an adviser to ETF issuer Bitwise, said Wednesday the debate reflects a misunderstanding of ETF market structure rather than evidence of manipulation.
In a screenshot post on X, Park outlined how large trading firms responsible for creating and redeeming ETF shares, known as authorized participants, operate under regulatory exemptions that allow them to meet ETF demand without mechanically forcing immediate spot Bitcoin purchases.
Park said those exemptions, which apply to all authorized participants, are designed to support orderly ETF market-making, but can create a “grey window” in which ETF share creation, hedging activity, and spot market transactions are not tightly linked in time.
As a result, ETF inflows do not always translate into immediate buying pressure in the spot Bitcoin market, weakening the assumption that ETF demand directly maps to spot price movements.
Ryan McMillin, chief investment officer at crypto fund manager Merkle Tree Capital, told Decrypt the structure also creates incentives that favour derivatives over spot markets.
Because Bitcoin futures frequently trade at a premium to spot prices in a condition known as contango, authorized participants may hedge exposure using futures while earning carry from the basis, he said.
“ETF assets under management balloons without forcing exchange buys, muting rallies below key levels where hype would otherwise push prices higher in a flywheel,” McMillin said.
McMillin added that when futures positions are reduced, either due to macro shifts or narrowing spreads, the adjustment can amplify price swings, contributing to sharp pullbacks that appear sudden to retail investors.
Both analysts stressed that the behaviour is legal and consistent with how ETFs are designed to operate, and does not imply wrongdoing by any individual firm.
Instead, they said it highlights how Bitcoin’s price discovery is increasingly shaped by institutional trading venues such as futures markets, rather than spot exchanges alone.
“APs wield hedge-fund-like incentives and tools with less accountability in a volatile, adoption-stage asset,” McMillin said. “The ETF 'innovation' risks becoming a yield-skimming machine for Wall St. that prioritises institutional arbitrage over genuine spot support.”
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