You know that talented band that is never going to be discovered until they develop a loyal following? They cannot develop a loyal fan base unless they find a place to play of sufficient size. But, in a classic chicken-and-egg scenario, no venue will hire them without evidence of a devoted fan base.
So, to create the perception of a loyal fan base, they borrow money, buy a bunch of tickets, and give them away for free to friends, family, and anyone else. Then, on the night of the big show, the venue is packed, and a concert promoter, seeing all of this interest, signs them to a tour. After that, their fan base grows organically as they play in progressively bigger arenas. That’s a simplified example of market making.
What about market making in the crypto space? Many fledgling token projects find themselves at a critical juncture in which they may become delisted from exchanges due to falling prices, low trade volumes, and increasing bid-ask spreads. A market maker can increase liquidity to build investor confidence by closing the bid-ask spread, stabilizing prices, and increasing trading volume.
Top Known Crypto Market Makers Today
An ICO or token project will typically find a crypto market maker by word-of-mouth referrals; until now, there has been no listing in which crypto market makers could easily be found. The BMJ team has compiled this list to help you find a market-making partner to support your needs. Our custom scoring takes the quality and experience of the leadership, commitment to ethical practices, and the delivery of customized value into account to rank solutions on a scale from 1 to 5.
| Market Maker | Description | Leadership Team | Years in Business | Demonstrated Commitment to Ethical Practices | Commitment to Delivering Customized Value and Optimal Bot/Human Balance | Size and Reach in terms of number of exchanges, services, activity levels | Score |
|---|---|---|---|---|---|---|---|
| GSR Markets | Founded in 2013, this Hong Kong-based firm is one of the original leaders in algorithmic digital asset trading. They use their proprietary software to drive liquidity solutions for the digital asset economy. | The team leverages decades of experience in finance, quantitative investments, and trading technology. Leaders come from Goldman Sachs and IBM and hold degress in business, math, computer engineering, and law from schools such as M.I.T. and Columbia. | 6 | Founding Member of ADAM; working to create a Code of Ethics for Digital Asset Markets. Claim volume allows them to deliver the lowest fee schedule. | Deliver personalized client relationships consistent with goals. Emphasize being the buyer and seller of last resort. | Over 20 exchanges, over $5 billion in trades, 30+ employees, 24/7 service | 4.5 |
| Wintermute Trading | Based in London, this professional crypto market maker creates liquid markets for ICOs, listed crypto projects, and crypto exchanges | Founders have strong background in High-Frequency Trading (HTF) from Optiver and hold advanced degrees in business and computer science from schools such as LBS and INSEAD. | 2 | Posted several articles on the importance of ethical market making practices | Focus on unique needs of your ICO and aligning incentives, partnering with exchanges, ICO platforms, and crypto VCs. Experience in both bull and bear markets, experienced traders support all activities. Offer performance-based fees, only paid if client objectives are achieved. | Over 100 exchanges, 24/7 service | 4 |
| Kairon Labs | Based in Belgium and the Netherlands, Kairon Labs performs market making for all utility tokens. They have developed their own proprietary trading software. They are currently in talks to begin working directly with exchanges. | The founders have degrees in informatics, business management, finance and insurance. Their prior experiences include enterprise architecture in the banking industry, developing trading algorithms, financial advising, and trading | 2 | Posted two articles on addressing misconceptions about crypto market making and the importance of not engaging in market manipulation | Choose to remain relatively small in order to deliver more personalized service. Emphasize need for customized solutions and experienced traders overseeing bots to prevent major swings. Offers low cost fees and a profit split with clients. | Over 120 exchanges, 2 traders dedicated to 24/7 monitoring and supervision | 3.5 |
| Coin Flow | Based in Hong Kong, these cryptocurrrency market makers provide services in the following three areas: designated market making, exchange market making, and ICO Advisory. | Diversified leadership team with experience in investment banking, high-frequency trading, software development, business development, and communications | No information | One article on crypto market making that is critical of pump and dump schemes | Successful market making for dozens of major cryptocurrencies | Market making for numerous Top 100 coins, 24/7 service | 2.5 |
| Pulsar Trading Cap | Founded in 2014 in Hong Kong, the next generation 24/7 liquidity service provider services ICOs, listed token projects, and exchanges. | No information | 5 | Committed to client service, efficiency, and best pricing | Listen and define customized liquidity strategies for their partners | Over 50 exchanges, 300+ cryptoassets, over $1 Billion in Volume, 24/7 uninterrupted service | 2.5 |
Keep in mind that information is limited on this relatively small pool. ICOs and token projects may not want investors to know that some of their trading volume isn’t organic. As a result, market makers often do not promote their work due to client confidentiality. We encourage you to make further inquiries in these areas should you consider utilizing their services.
How Crypto Market Makers Work
Simply put, market makers are companies that will buy from one investor, and sell to another, providing market liquidity—in other words, making it easier for everyone to buy and sell.
Market makers earn money through a small profit (the “spread”) between the buy and sell price (or “bid and ask” price)—which adds up when you’re doing millions of trades a day.
In the bitcoin and altcoin markets, we also have market makers. They’re on bitcoin exchanges, typically using automated bots to offer many different trades at different prices, along with a human that oversees the day’s trading.
If you want to trade 10 BTC for the equivalent amount of ETH, for example, it’s unlikely there’s someone just waiting to sell you that precise amount. A market maker will buy your BTC and give you ETH, then later do the trade in reverse, making a small profit.
A New Coin’s Liquidity Challenge
That works well for bigger coins like bitcoin and Ethereum, but newer, smaller coins have a distinct disadvantage in the liquidity department. These coins must be listed on an exchange to attract buyers, but getting listed on an exchange is not that easy because exchanges want to know there’s enough liquidity—enough buyers and sellers—to make a market. Once again, it’s the chicken and egg scenario.
Moreover, simply being listed on an exchange is not enough. It helps a coin’s liquidity, but only to a point. If trading volume for the coin does not grow, the exchange could decide to delist the coin, a move that could make the coin’s value plummet.
Before that happens, savvy coin projects hire a market maker. By offering to buy and sell at a variety of different prices and quantities, the market maker makes it easier for “real” investors to buy and sell the coin—and they provide security that investors are not going to get stuck with an unsellable token.
In the emerging world of altcoin investing, many exchanges will not even consider listing your token unless you have an established relationship with a market maker. In fact, a highly skilled and established market maker can even help find the optimal exchange and negotiate the best deal for the listing.
Without makers, markets would be a mess. The New York Stock Exchange, for example, has official market-making firms to provide liquidity—but they are highly regulated, and here’s why.
Avoiding Market Manipulation
An honest crypto market maker can only control the bid-ask spread and quote size for the length of the service agreement. Promises of price targets or trading volumes should arouse suspicions.
You see, some “crypto market makers” are buying and selling from themselves. Market makers who do this will tell you they’re trying to “prime the pump” or “kickstart” or “get the ball rolling” for the token, and in a sense they’re right. They’re also deceptive.
If the market maker starts artificially inflating the buy and sell prices, it looks like the real value of a token is much higher than a real investor would pay. All a potential investor will see is a token price that’s ticking upward (like a stock rising in value), but if he decides to invest, he’s investing in a lie.
This is one of the “market manipulation” tactics the U.S. Securities and Exchange Commission is so worried about in the digital asset space. (Here’s a great article that uncovers more.)
Education Is the Best Defense against Manipulation
As an investor, educate yourself.
- Avoid smaller tokens without much liquidity.
- Avoid tokens listed on just one exchange.
- Research deeply what you’re buying, using tools like our Investor Scorecard.
- Look for real investors who are investing in the long-term potential of the token.
- Avoid hype and hyperbole.
You want to make sure there’s a “there” there. A real project, backed by real investors, with a real future. As always, think long-term. Invest with impact.
By understanding market makers, you can avoid getting taken by the market.
The Future of Crypto Market Making
Although currently unregulated, it is highly likely that regulation will occur, and most likely it will begin in the United States. At BMJ, we want to provide insights that will help create a regulatory environment that will prove beneficial to the entire blockchain ecosystem by protecting the interests of the companies and their investors.
Until the official regulation develops in the crypto markets, the best course of action is for key players in the industry to engage in self-regulation to build confidence in those markets. This will lead to more organic volume and the potential for real price appreciation due to the success of the project.
Whether you are interested in hiring a crypto market maker or becoming one yourself, this is an initial draft of our proposed Crypto Market Making Code of Ethics, which is consistent with our rating criteria.
Bitcoin Market Journal Crypto Market Making Code of Ethics
- Only promise what you can deliver, which is to maintain a consistent spread for the length of your agreement.
- Make trades that buyers and sellers want; be a buyer and seller of last resort.
- Charge reasonable fees and consider performance-based fees and/or profit sharing with the client.
- Provide complete transparency in your transactions.
- Do not guarantee a specific volume of activity or price.
If you are a market maker, especially one who would like to be included in our future crypto market maker ratings, considering adopting this code. If you are considering hiring a market maker, ask them to make commitments around these points.
To join a vibrant community of like-minded investors who are interested in ethical digital currency investing, take just a moment today to subscribe to the Bitcoin Market Journal newsletter and stay abreast of developments in this rapidly evolving space.
