Cryptos Need Market Makers for New Coins
I’ve had contacts ask me if I know crypto market makers. You can tell by the tone of their voice the hope is these white knights ride in to save an alt-coins’ day. Here are a few observations about market makers and if anyone has a different perspective, please share. The number one rule of market makers is do not lose money. They do this by minimizing risk taking to the greatest extent possible. This may seem counterintuitive but it’s not. Modern-day market makers are high frequency traders. They lay off risk from one exchange to another. They may buy, say, ETH at $155.00 and nanoseconds later sell it on a second exchange for a penny higher. Aside from the necessary tech infrastructure wizardry, it’s nothing glamorous. The lynchpin of this approach is liquidity; without ample bid-ask spreads market makers can’t do their work. I don’t see how anyone can properly make markets in a coin with a market cap of less than $250 million. I spoke to the head of one of the largest crypto OTC desks last year and he told me they make markets in 20-25 coins. He wouldn’t elaborate on which ones. Market makers are not investment bankers. They’re not venture capitalists. They don’t want to own billions of free-falling coins. They seek profits – not risks. And that’s entirely their prerogative.