Short squeeze target Citadel wants to be a cryptocurrency market maker
Citadel Securities’ billionaire chief exec Ken Griffin — the arch nemesis of ConstitutionDAO — is throwing more weight behind cryptocurrency.
Griffin says his enormously lucrative firm wants to start market making and providing liquidity on crypto exchanges by the end of 2022.
The move makes sense when you consider Citadel Securities sold $1.15 billion in equity to cryptocurrency venture capitalist Paradigm and Silicon Valley mainstay Sequoia in January. It was the first time Citadel had ever accepted outside investment.
The thing is, Griffin has stridently opposed crypto for its entire existence. He more-or-less told Bloomberg earlier this week he’d made a mistake by not buying Bitcoin earlier.
“Crypto has been one of the great stories in finance over the course of the last 15 years,” said Griffin. “And I’ll be clear, I’ve been in the naysayer camp over that period of time.”
“But the crypto market today has a market capitalization of about $2 trillion in round numbers, which tells you that I haven’t been right on this call.”
Indeed, Bitcoin has rallied over one million percent since Griffin first heard of it.
Griffin’s Citadel faced epic short squeezes last year
Griffin, who’s net worth is estimated at $25 billion, made a mockery of decentralized finance when he skilfully outbid a DAO formed to buy a rare copy of the US Constitution.
Because ConstitutionDAO’s crypto balance was publicly visible on the blockchain, Griffin precisely outbid the DAO during its Sotheby’s auction with $43.2 million.
Griffin truly destroyed the entire project. ConstitutionDAO offered to return funds to donors after it lost the auction, but after round-trip Ethereum gas fees, the majority of DAO contributors would’ve lost their entire donation.
While cryptocurrency fans might know Griffin from the ironically hilarious ConstitutionDAO fiasco, more traditional participants likely recognize Citadel Securities due to its enormous reach in equity markets.
- Citadel is party to 25% of all US securities transactions, including 40% of trades involving retail investors, noted the Financial Times in January.
- Griffin siphons consistent profits by convincing so-called “commission free” investment apps like Robinhood to route orders to be executed through its system (and into Citadel’s lap).
- This practice is known as “Payment for Order Flow.”
The sheer enormity of Citadel shouldn’t be understated. Its valuation had soared to over $22 billion as of its latest funding round, meaning it’s worth about as much as consulting giant Gartner and entertainment stalwart Twenty-First Century Fox.
Forbes lists Ken Griffin as the 47th wealthiest person in the world with an estimated net worth of $16 billion.
His enormous profits — and short positions — made Citadel (and its hedge fund investments) a target for squeezes organized by Reddit members in January 2021, particularly on gaming stock GameStop and cinema chain AMC.
Robinhood’s dealing of the short squeeze incident (which involved suspending the ability to buy certain stocks) led to increased scrutiny from the US Securities and Exchange Commission (SEC), which took a closer look at Ken Griffin’s business operations.
Citadel goes from bailout money to crypto cash
A few months afterward, Griffin had to defend his firm’s Payment for Order Flow operations before a congressional committee.
There, Citadel’s chief exec obviously claimed that Payment for Order Flow is a net win for American retail investors, extolling the simplicity of Robinhood’s commission-free trading experience.
He also swore that his enterprise adheres to all SEC regulations. To Bloomberg, Griffin also acknowledged the company’s challenges in 2008, when the meltdown in subprime mortgages triggered the Great Recession.
Business Insider reported in 2009 that insurance bigwig routed government bailout money to Citadel Securities in exchange for lending securities to AIG for short-selling.
Deals like these added to criticism of government billionaire bailouts at the expense of the American public. Satoshi Nakamoto threw shade at those kinds of bailouts in Bitcoin’s genesis block.
Now, a fund that directly benefitted from such taxpayer-funded measures is wading deeper into crypto in search of profits. Nice.
Read more: [Crypto market maker Cumberland parent backs trade manipulation monitor]
In any case, Griffin told reporters that he still has his skepticism, but “hundreds of millions of people” now disagree.
“To the extent that we’re trying to help institutions and investors solve their portfolio allocation problems, we have to give serious consideration to being a market maker in crypto,” he said, our emphasis)
“It’s fair to assume that over the months to come, you will see us engage in making markets in cryptocurrencies.”
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