A court-appointed bankruptcy administrator for Terraform Labs has sued quantitative trading giant Jane Street in New York federal court, accusing the firm of exploiting non-public information during the May 2022 collapse of TerraUSD (UST), a case that is now rippling through crypto markets and reigniting debate over Bitcoin ETF mechanics and institutional trading flows.
Lawsuit Alleges Insider Channels and Pre-Depeg Liquidity Exit
According to the complaint filed on Feb. 24, Jane Street allegedly established private communication channels with Terraform insiders via a former intern, Bryce Pratt, enabling access to confidential data ahead of key liquidity movements. The filing claims that on May 7, 2022, Terraform withdrew roughly 150 million UST from the Curve liquidity pool without public notice; within minutes, a Jane Street-linked wallet allegedly removed about 85 million UST, a move characterized in the suit as a front-running trade executed before the broader market realized the impending de-peg.
The plaintiffs argue that such actions both generated illicit profit and exacerbated the destabilization that ultimately triggered Terra’s collapse, wiping out tens of billions in value across crypto markets.
Jane Street rejected the allegations, calling the lawsuit “baseless and opportunistic,” and said it intends to defend itself vigorously.
Market Reaction: Coincidence or Causation?
The case has quickly fed a popular narrative circulating across crypto trading desks and social media: that Bitcoin’s persistent “10 a.m. ET sell-off” pattern has abruptly vanished since the legal action surfaced. Market observers note that Bitcoin has rallied roughly 10% in the days following the news, adding over $100 billion in market capitalization, while the broader crypto market expanded by nearly $200 billion over the same period.
ETF analyst Eric Balchunas described the shift in sentiment as the removal of a perceived “threat” that had repeatedly undermined intraday rebounds. Still, he cautioned that the disappearance of a trading pattern alone is insufficient evidence of sustained structural demand returning to the market.
The notion that a single firm’s trading behavior could systematically influence daily price action remains contested, but the timing has revived scrutiny around the role of large liquidity providers in shaping short-term volatility.
ETF Plumbing Under the Microscope
Beyond the legal claims, the lawsuit has intensified discussion about how Bitcoin spot ETFs interact with underlying markets. Authorized participants (APs) can create or redeem ETF shares under regulatory exemptions without immediately transacting in the spot Bitcoin market. In practice, this means ETF inflows do not always translate into synchronous spot buying; participants may hedge exposure using futures or other derivatives, producing lags between fund flows and price movement.
Such dynamics have led some analysts to speculate that structured flows, rather than discretionary selling, could explain recurring intraday drawdowns historically attributed to institutional liquidity rebalancing.
Jane Street’s Expanding Crypto Footprint
The litigation also spotlights the growing reach of Jane Street across digital assets. The firm has invested in infrastructure and DeFi projects including Arbitrum, 1inch, and Euler Finance, while providing liquidity to major exchanges and participating in funding rounds for Kraken. It is also reported to be a significant liquidity provider and shareholder in Coinbase.
In public equities tied to the crypto mining sector, Jane Street has built meaningful positions via secondary markets, including stakes in Bitfarms, Cipher Mining, and Hut 8 between 2024 and 2026.
Regulatory Pressure Mounting
The Terraform lawsuit adds to a widening regulatory overhang. Indian authorities previously froze roughly ₹4.8 billion ($565 million) in Jane Street-linked assets amid allegations of market manipulation and imposed a trading ban in local securities markets. Separately, market participants report increasing scrutiny from Chinese regulators examining ETF trading patterns, though no formal enforcement action has been publicly confirmed.
Structural Question: Was There Ever a “10 a.m. Seller”?
For institutional desks, the key issue is not whether Jane Street alone drove price swings but whether systematic flows tied to ETF hedging, liquidity provisioning, or cross-venue arbitrage produced recurring pressure windows that traders came to recognize as predictable sell-offs.
If those flows have shifted, whether due to litigation risk, repositioning, or changes in ETF arbitrage conditions, the disappearance of a once-reliable intraday pattern could signal a deeper transition in market microstructure rather than a simple sentiment rebound.
For now, the lawsuit remains unproven, and market participants caution against conflating correlation with causation. Yet the case is likely to fuel continued debate over how concentrated liquidity providers influence price discovery in an increasingly institutionalized crypto market.
As discovery proceedings unfold, the outcome may carry implications far beyond Terraform’s bankruptcy estate, potentially reshaping how regulators and investors interpret the opaque intersection of quantitative trading, ETF plumbing, and crypto market stability.
