Who Is Shorting ETH?

Recently, an asset allocation table from a mysterious institution has surfaced, drawing attention due to its inclusion of a $3.1 billion Ethereum short position in a "multi-strategy" investment portfolio.

So, who exactly holds this $3.1 billion Ethereum short position? After investigating various sources of the asset allocation table, BlockBeats has identified two most likely candidates.

The first is Bridgewater Associates. Some leaked data from other sources align with this asset allocation table, and Bridgewater's CEO, Ray Dalio, has expressed interest in cryptocurrencies. As a Bitcoin maximalist, he fits the logic of shorting ETH to some extent.

The other candidate, which we will focus on today, is Citadel Securities.

One Giant Falls, Another Rises

If you recall the Black Monday in August 2024, triggered by Japan's interest rate hike, the first rate increase since the end of negative interest rate policy caused the yen to soar against the dollar. This led to a reversal of carry trades and massive liquidations, causing a global financial market crash. Japan's stock market plummeted by 9%, triggering the circuit breaker mechanism twice in the Nikkei index, marking the largest single-day drop in eight years. South Korea and Taiwan's stock markets were also affected, and the cryptocurrency market suffered a heavy blow. Bitcoin briefly fell below $50,000, while Ethereum plummeted by over 25%, erasing all its gains for the year.

However, attributing the cryptocurrency crash solely to Japan's economic impact is not convincing to everyone. It was not until some industry insiders revealed the inside story.

Arthur Hayes, a co-founder of BitMEX and an early king of the crypto world, posted on social media that he had learned through traditional financial channels that a "big player" was liquidating its crypto assets. Although he did not name the entity, the community has pointed to Jump Trading and its crypto division, Jump Crypto. Since June last year, the Commodity Futures Trading Commission (CFTC) has been investigating Jump Crypto. In addition to regulatory pressure, Jump Crypto has been embroiled in several controversial incidents. First, the collapse of FTX caused significant losses for Jump Crypto. Moreover, Jump's involvement in the TerraUSD stablecoin collapse has drawn regulatory attention.

As the CFTC's investigation deepened, Jump Crypto's young CEO, Kanav Kariya, announced his resignation, and the official Jump Crypto Twitter account ceased updates, signaling Jump's gradual exit from the crypto industry.

Yet, as one giant fell, another emerged. Yesterday, Citadel Securities, the market maker, announced plans to enter the cryptocurrency market-making field. It seems like a relay race among traditional financial giants: as Jump Crypto exited, Citadel Securities, also from a traditional financial background, took over the baton in the crypto market.

Citadel Securities: The Wall Street Market-Making Titan

Citadel Securities is one of the largest market makers on the New York Stock Exchange, with daily trading volumes accounting for nearly 35% of U.S. stock trading, equivalent to the daily trading volume of the Shanghai and Shenzhen stock markets, and an annual revenue of around $7 billion. For more information, read: "Citadel Securities: Why It Makes Over $100 Million a Day?"

In addition to its market-making business, Citadel's main business is hedge funds, managing $65 billion in assets. It is a tech-savvy hedge fund that analyzes the market through vast amounts of information and various mathematical models, while also focusing on investment fundamentals. It is said that Citadel invests hundreds of millions of dollars annually in models and hardware.

According to data from LCH Investments, in 2022, the top 20 hedge fund firms generated a total profit of $22.4 billion (after fees), with Citadel leading the pack at $16 billion, setting a new record for annual returns in the hedge fund industry. The latest data shows that Citadel still tops the list of global hedge funds in terms of net returns and valuation since inception, with Bridgewater Associates ranking fourth.

Citadel's Founder: A Wealthy and Influential Figure

Citadel's founder, Ken Griffin, has a net worth of $45.9 billion, ranking 22nd on the Forbes 400 list and 31st globally. He once boldly claimed, "We do indeed print money."

The CEO of Citadel Securities, however, shares a name similar to that of the richest person in the crypto world, Zhao Peng.

Compared to Ken Griffin's background, Zhao Peng's resume resonates strongly with many Asians: he entered a gifted children's program at the age of 10, was admitted to Peking University's Mathematics Department at 14, and later pursued a Ph.D. at the University of California, Berkeley.

In 2006, Zhao Peng joined Citadel and quickly rose to prominence thanks to his exceptional mathematical talent. By 2017, he had become the CEO and one of the founder's most trusted confidants.

During his four years as CEO, Zhao Peng increased Citadel Securities' net trading revenue fivefold, a growth rate that is almost unimaginable. Under his leadership, Citadel Securities not only secured a more dominant market position but also achieved unprecedented profitability. Zhao Peng's name became synonymous with the elite in the overseas student community over a decade ago. For more information, read: "Zhao Peng: The Pinnacle of Chinese Talent on Wall Street, with a Life of Success Since Age 10."

At that time, overseas students would recall Zhao Peng while dining at Old Sichuan Restaurant in Chinatown, discussing his achievements with great admiration: "In Chicago's iconic Lakeshore, he purchased two luxury apartments facing Lake Michigan, combined them, and the total value exceeded $10 million." Many aspired to become the next Zhao Peng.

Citadel's Covert Involvement with Sequoia and Paradigm

Citadel's official entry into the crypto space was much later than its competitors, as Jane Street and Jump Trading had already established digital asset businesses in 2017 and 2021, respectively. It seemed that regulatory concerns kept Citadel's connection with the crypto market "underwater."

In 2021, there was a highly publicized event in the crypto world. Sotheby's auctioned a 1787 edition of the U.S. Constitution. At that time, 1,700 crypto enthusiasts formed a decentralized organization called ConstitutionDAO, raising $43 million through social media crowdfunding to bid for the Constitution, which also led to the creation of the PEOPLE coin.

Unfortunately, they did not succeed in acquiring the Constitution. The highest bidder was none other than Citadel's founder, Ken Griffin.

In 2022, this billionaire accepted the first external investment for Citadel Securities, completing a $1.15 billion financing round at a $22 billion valuation. The lead investors were familiar names in the crypto industry: Sequoia Capital and Paradigm.

A partner from Sequoia Capital, Lin Junrui, joined the board of Citadel Securities, and Paradigm's co-founder, Matt Huang, expressed his intention to collaborate with Citadel Securities to expand their technology and expertise into more markets and asset classes, including crypto assets. Despite this, Griffin, to avoid regulatory issues, still claimed in media interviews that Citadel Securities had not yet engaged in cryptocurrency trading.

However, such statements could not conceal Citadel's quiet layout in the crypto space. It was from that year that Citadel officially began to dip its toes into the crypto industry by establishing a dedicated crypto business division.

First, Citadel Securities' Global Head of Business Development, Jamil Nazarali, was appointed as the CEO of Citadel's crypto business. He began collaborating with another top market maker, Virtu Financial, and fund giants Charles Schwab and Fidelity, to conduct digital asset trading and brokerage services.

Then, in June 2023, they officially launched the cryptocurrency trading platform EDX Markets, with Jamil Nazarali as CEO. The platform focuses on "non-custodial" and "zero retail" trading, with trading limited to Bitcoin, Ethereum, Litecoin, and Bitcoin Cash.

In addition to Jamil Nazarali, Citadel has cultivated many elites closely related to the crypto world. For example, Brett Harrison, the former president of FTX US who left due to management disagreements with SBF, also served as a technical leader at Citadel Securities, bringing significant technological innovations to the company.

However, Griffin's attitude towards cryptocurrencies has always been somewhat contradictory. Initially, he publicly expressed skepticism about cryptocurrencies, arguing that they had no intrinsic value. In recent interviews, however, he admitted that he regretted not investing in Bitcoin early on and that he might have purchased these assets if he had seen clearer value.

Citadel Securities' foray into the crypto space is not as complicated as we might think. Political alignment has further deepened its connection with the crypto world. After Trump was elected president, especially his support for the crypto industry, many traditional financial giants, including Griffin, saw the vast potential of crypto. Like most crypto whales, Griffin firmly supported the Republican Party during the 2024 election cycle. In the recent election cycle, he was one of the top five donors to the Republican Party, second only to Elon Musk.

From Shorting Stocks to Shorting Crypto

Returning to the topic at the beginning of our article, why is the institution holding the $3.1 billion Ethereum short position suspected to be Citadel?

In addition to its recent activities in the crypto space, Citadel's name is often closely associated with "shorting." There are many rumors about their short-selling activities in the market.

Back in 2015, during the stock market crash, there were rumors that offshore short-selling forces were one of the culprits behind the plunge in A-shares. At that time, the China Securities Regulatory Commission (CSRC) investigated many accounts and suspended a batch of trading accounts suspected of influencing securities prices or other investors' investment decisions.

Among them was an inconspicuous company: Situ (Shanghai) Trading Co., Ltd. According to the National Enterprise Credit Information Publicity System, Situ was a wholly-owned subsidiary of a foreign legal entity, with Citadel as its shareholder. After a five-year investigation and negotiation, Situ eventually agreed to pay $100 million to reach a settlement with Chinese regulators. At that time, a well-known overseas financial blog, ZeroHedge, disclosed that Citadel had close ties with the Federal Reserve, often holding secret meetings, and was essentially a tool for the Fed to control market stability. They used high-frequency trading and other means to boost the U.S. stock market.

Then, in 2021, when Robinhood banned retail trading during the GameStop (GME) stock crash, Citadel's name once again became the center of many suspicions. Retail investors believed that Citadel, through its financial support to Robinhood, manipulated the showdown between retail investors and institutions. Although Ken Griffin denied these allegations in a congressional hearing, the close relationship between his company and Robinhood could not quell the accusations.

It is important to note that Citadel Securities is not an ordinary market maker. On the surface, its relationship with Robinhood is that of a client and supplier, but behind the scenes, Citadel provides a significant amount of order flow to Robinhood. This was fully exposed during the GameStop incident. Since Citadel paid Robinhood tens of millions of dollars to execute these trades, it naturally became the "behind-the-scenes manipulator" in the eyes of retail investors.

In fact, Citadel's years of short-selling operations have already made it an "invisible manipulator" in the market.

Even in 2023, Terraform accused Citadel of possibly being involved in the shorting of UST, which ultimately led to the de-pegging of UST in May 2022. They demanded that Citadel Securities provide some key trading data. Although Citadel firmly denied any direct involvement in the UST collapse.

"No wonder the price trend of GME is so similar to that of ETH," some community members pointed out that Citadel Securities plays an important role in this, using the same strategies and tactics for market-making. Indeed, since July 2024, the trend of ETH has been almost identical to that of GME's stock price.

ETH Price Trend (Top); GME Price Trend (Bottom)

It is no surprise, then, that Citadel Securities is suspected of being one of the institutions shorting ETH.

However, it is worth noting that as a top hedge fund, it is possible that they hold a significant amount of ETH spot while shorting ETH to hedge risks. From this perspective, this might actually be a good thing, as their spot holdings are the main positions, and shorting is just an auxiliary strategy aimed at ensuring the stable appreciation of their assets.

This also indirectly supports the widely circulated rumor of an "ETH whale shift," with Wall Street giants gradually building positions and becoming new crypto whales. The competition and博弈between crypto market makers continue.