Jane Street's $85M UST Redemption and Debunking the 10 AM Theory: Transaction Flow Review

Key Event Behind the Lawsuit

The lawsuit centers on a pivotal liquidity withdrawal involving Jane Street. A wallet associated with the firm removed 85 million TerraUSD from Curve3pool just minutes after Terraform Labs discreetly extracted $150 million in liquidity from the same pool. This sequence of withdrawals rapidly destabilized TerraUSD’s dollar peg, triggering a $40 billion collapse in the market.

The legal action aims to recover losses for creditors who suffered billions in damages. The bankruptcy administrator claims Jane Street leveraged confidential information from Terraform insiders to execute trades ahead of the market, profiting from the ecosystem’s downfall before the public became aware of the liquidity crisis. The lawsuit seeks compensation from Jane Street’s co-founder and several employees.

Clarifying the UST Withdrawal and the 10 AM Sell-Off Theory

This particular UST withdrawal is distinct from the widely discussed 10 a.m. sell-off theory. That narrative, which gained momentum after the lawsuit was filed, alleges that Jane Street routinely sold off Bitcoin every morning at 10 a.m. to influence prices. Despite the timing of the lawsuit coinciding with a strong crypto market rally, there is no public data supporting the existence of this daily pattern. The UST withdrawal accusation is a single, well-documented instance of alleged insider trading, not evidence of ongoing market manipulation.

The $2.5 Billion IBIT/MSTR Trading Strategy

While the 10 a.m. Bitcoin dump remains a theory, Jane Street’s actual trading activity is well documented. The firm has consistently sold Bitcoin at the start of the U.S. trading day while simultaneously increasing its holdings in MicroStrategy (MSTR) shares. According to its latest 13-F filing, Jane Street increased its MSTR position by 473%, reaching $121 million, in stark contrast to other major funds that have been reducing their exposure.

This trading pattern is facilitated by Jane Street’s role as an authorized participant (AP) for spot Bitcoin ETFs like BlackRock’s IBIT. As a primary market maker, the firm can create or redeem ETF shares by exchanging baskets of underlying assets. With a $2.5 billion-plus position in IBIT, Jane Street has the scale to influence such flows. By selling Bitcoin at the market open, the spot price can be pushed lower, allowing the firm to acquire ETF shares at a discount during the creation process.

A crucial detail is that Jane Street’s substantial IBIT holdings do not necessarily reflect its net Bitcoin exposure. As noted by crypto analyst Justin Bechler, a $790 million IBIT position could be offset by shorting futures or options, making the firm’s actual Bitcoin exposure opaque in public disclosures. This legal structure enables Jane Street to profit from price differences between the spot market and ETFs, turning the market open into a regular opportunity for liquidity management.

Examining the 10 AM Dump: Data Versus Narrative

The popular belief in a daily 10 a.m. Bitcoin sell-off is not supported by actual trading data. Since January 1, Bitcoin’s cumulative return during the 10:00-10:30 ET window has been 0.9%—a positive result that contradicts the idea of systematic selling. This trend closely tracks the Nasdaq Index, suggesting that broader market repricing, not targeted manipulation, is at play.

The mechanics behind the supposed pattern are more complex than simple selling. Jane Street’s large $2.5 billion-plus IBIT position allows it to act as an authorized participant, creating or redeeming ETF shares. This process often involves buying spot Bitcoin and selling futures as a hedge—a delta-neutral strategy commonly used by institutional investors. While these trades can cause short-term price movements at the market open, they do not amount to a consistent, algorithm-driven sell-off.

Claims that volatility at 10 a.m. has disappeared since the lawsuit are anecdotal and not backed by data. The lawsuit’s timing coincided with a strong market rally, leading to speculation that a major source of selling pressure had been eliminated. However, the lack of a daily sell-off is not evidence of a structural change. Jane Street’s legal and hedging strategies remain in place, and the market’s response is more likely a relief rally than proof of halted manipulation.