Cryptocurrency markets, with their rapid price movements, are often unpredictable. Crypto projects trying to build and maintain a robust presence in the digital markets require assistance to maintain liquidity and build a healthy trading environment. Crypto market making serves as a primary instrument for that.
In this article, we shall talk about what crypto market making is. We will also focus on crypto market services and strategies and explain how they can bring profits to businesses and individuals investing in digital assets.
What is the Crypto Market Making?
Crypto market making is the activity aimed at enabling smooth trading operations for a given asset (token). It is a process of continuous placing of buying and selling orders by a professional financial entity called a market maker for specific digital assets. While fostering activity and boosting market activity, crypto market makers also ensure individual companies can quickly find counterparties for transactions and sell or buy their assets at competitive prices.
How Does Crypto Market Making Work?
For the crypto market to be productive, it has to be liquid or, in other words, provide easy conditions for selling and buying cryptocurrencies.
Similar to traditional trading, crypto market making helps liven up the crypto market by facilitating the exchange operations. In practice, market makers fill the order books (the real-time lists of buy and sell orders for every particular asset) consistently with buy orders (bids) and sell orders (asks).
The difference between the bid (the highest price a client is willing to pay for an asset) and an ask (the lowest price a seller wants to accept for an asset) makes up a bid-ask spread for a certain cryptocurrency.
The narrower the spread is, the smaller the price fluctuations become, the more beneficial trading becomes for investors. This leads to increased market liquidity and heightened interest from individual traders.
Logically, crypto market makers stick to the so-called market-neutral positions, or a practice of placing numerous buy and sell bids for the same assets, making profit regardless of the price movements.
Companies conducting crypto market-making tend to rely on automated trading, which has gained wide popularity in recent years thanks to the development of AI-based solutions. Unlike human-based trading, where all operations are planned and executed by a professional human being, automated trading uses sophisticated prediction and agentic algorithms in pursuit of smoothing and optimizing trading for all market participants.
Trading algorithms employed by crypto market-making firms may generate prompts for traders as they place bids and asks, or they can be used to build automated trading systems programmed to automatically create buy and sell orders based on market analysis.
Automated trading systems empower high-frequency trading (HFT), which processes a large number of orders in a second. This way, HFT boosts market liquidity even further and is associated with higher revenues for those who use it.
Exploring Crypto Market-Making Strategies
In the highly dynamic crypto environment, sticking to well-thought-out strategies ensures sustainable profitability. The best crypto market-making strategies are as follows:
- Symmetrical order placing. Crypto market makers practice placing orders above and below current market prices, creating tight spreads. It offers protection from abrupt price swings and attracts more trades.
- Hedging and risk management. This crypto trading strategy lies in holding a wide range of digital assets. This way, traders avoid risks connected with a single asset volatility. Additionally, hedging tools, like futures, help minimize potential losses.
- Using tools and bots. The practice of utilizing digital tools powered by prediction algorithms supplies market makers with a basis for trading decisions. Compared to a manual analysis conducted by a human person, these trading tools enhance the speed and scope, thus making predictions more accurate.
Yet, the prevalence of tools doesn’t permanently exclude the role of a trader’s experience and intuition. Companies such as B2C2, Vortex, or DWF Labs that provide crypto market making services still use both manual and automated trading to ensure the best outcomes.
Top Crypto Market-Making Firms and Companies
As the crypto market grows and matures, its key players become established business leaders with recognizable brand names. The best crypto market-making firms are:
DWF Labs
DWF Labs is one of the biggest crypto market maker firms with a presence on leading trading platforms like Bybit, Gate.io, and Binance. For the market making of cryptocurrencies, it employs advanced high-frequency trading (HFT) and automated trading software, along with liquidity provisioning. Apart from that, the company offers crypto venture funding, over-the-counter (OTC) trading, and other services for blockchain projects.
Bluesky Capital
Bluesky Capital is a crypto market-making company specializing in advanced algorithmic trading strategies. They offer a proprietary technology for analyzing market trends. They also develop tailored liquidity solutions for companies worldwide.
Pulsar
Pulsar specializes in quantitative and high-frequency trading based on advanced strategies and technologies. The firm trades in over 600 cryptocurrencies and operates across several global exchanges.
Kairon Labs
Kairon Labs is a crypto market-making company that focuses on providing automated liquidity solutions. They offer custom algorithmic trading strategies powered by in-house software and enhanced analytics.
Alpharetta
Alphatheta maintains a wide presence on leading crypto exchanges, specializing in working with startups. Their offering includes the use of robust algorithms and bots that execute trading strategies across different crypto exchanges simultaneously.
Regulatory Considerations & Risk Management
The future development of crypto markets will go hand-in-hand with the growing regulations and expanding legal environment. The number of countries planning either to implement taxes or laws on crypto trading is increasing. Therefore, companies working in this sphere should be ready to comply with the emerging legal requirements.
At the same time, the risk of theft and cyber attacks is also rising. Therefore, crypto market maker companies should invest heavily in cybersecurity.
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Conclusion
Companies offering crypto market-making services make trading of digital assets attractive to individual investors by ensuring uninterrupted trading activity. At the same time, strategies and methods of crypto market making keep maturing. The spread of machine learning software enables the growth of enhanced digital tools for market analysis and predictions, boosting existing methodologies like high-frequency trading, which ultimately benefits institutional players such as market makers.
As the crypto market is projected to grow in the following decade, we will likely witness the rise of new crypto market-making tools and methodologies, which will create more opportunities for new and old players alike.
