Cryptocurrency Market Making and Its Role In Keeping Healthy Markets

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Cryptocurrency Market

The growth of crypto institutional trading started in the 2020s when the Bitcoin price surged to its historical peak. At that time, such companies as MicroStrategy and Tesla started to pour billions into Bitcoin, propelling crypto adoption among other companies. Today, many banks integrate crypto trading desks, many payment processors add crypto as a payment method, and many businesses use digital assets for transactions. Still, we dare say, that institutional adoption has its origin in the 2010s, when the first market makers such as GSR, showed up.

In this article, we will discuss the role of market-making in crypto and give you some examples.

Who Can Become A Market Maker in Crypto?

Crypto market makers are entities, high-frequency traders, or individuals who actively participate in the crypto markets with the primary goal of providing liquidity. They facilitate trading activities by continuously quoting buying (bid) and selling (ask) prices for digital assets. The essence of market makers lies in their ability to create a two-sided market, ensuring there are always available prices for traders to buy or sell digital assets. Market makers may work within one market-making platform to ensure sufficient liquidity in it, or provide liquidity to specific tokens in order to make them attractive to investors.

Crypto Market-Making Services and Roles

Here are the roles of market makers:

  • Liquidity provision services – by offering continuous buy and sell prices market makers make it easier for other traders to fulfill transactions.
  • Narrowing bid-ask spread – the essence is to narrow the bid-ask spread, reducing the cost of trading for participants and creating a more competitive market environment.
  • Price stability – by actively participating in the market, market makers help stabilize prices, preventing sharp and sudden fluctuations.
  • Risk management – a market maker employs a crypto market-making strategy to control and reduce potential losses, ensuring a balanced and sustainable trading approach.
  • Algorithmic trading – many market makers use algorithmic trading software to automate their strategies, enabling quick and efficient responses to changing market conditions.

Leaders in Market Making in Crypto

The well-known crypto market maker Jump Trading is a high-frequency trading firm that provides liquidity across various financial markets, including cryptocurrencies.

Cumberland is another global cryptocurrency market maker, catering to institutional clients with liquidity solutions.

Galaxy Digital Global operates in various crypto-related sectors, including market-making services, and has the largest number of independent traders and fund managers with clients from all around the World.

Conclusion

Successful trading is impossible without market makers, especially when it comes to institutional crypto trading. It’s hard to overestimate market makers’ role, as they build a healthy and stable environment in the market, stabilizing prices and reducing costs for other market participants.

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