Trading & Financial News
No Result
View All Result
Saturday, September 23, 2023
  • Login
  • Economy
  • Markets
  • Forex News
  • Investing
  • Stock Trading
  • Crypto
Subscribe
Trading & Financial News
  • Economy
  • Markets
  • Forex News
  • Investing
  • Stock Trading
  • Crypto
No Result
View All Result
Trading & Financial News
No Result
View All Result
Home Crypto

Crypto Market-Making Profit Margins Take a Hit, Down 30% Amid Industry Changes

by Tradinghow
September 6, 2023
in Crypto, Stock Trading
A A
0
Crypto Market-Making Profit Margins Take a Hit, Down 30% Amid Industry Changes
152
SHARES
1.9k
VIEWS
Share on FacebookShare on Twitter


Source: Adobe / Bill Gallery

The once-lucrative business of market-making in crypto, facilitating trades and profiting from the spread between buying and selling prices, has faced headwinds recently.

One major factor contributing to this decline is the heightened caution among investors following the crypto market’s downturn last year, which wiped out approximately $2 trillion in value, Bloomberg reported on Tuesday.

The bankruptcy of exchanges like FTX has left a significant amount of digital assets stranded on collapsed platforms, making market-makers wary of potential future turmoil.

To mitigate these risks, the firms have adopted several strategies that, while reducing exposure, have also eroded profit margins, the Bloomberg report said.

One approach is diversifying activity across multiple cryptocurrency exchanges to avoid concentration risk.

Additionally, market-makers are increasingly storing digital assets off trading venues and using them as collateral to borrow tokens for deployment on crypto platforms.

This collateral is typically held with custodians or prime brokers, ensuring that only the borrowed tokens are exposed if an exchange were to fail.

Higher cost of business

Not surprisingly, risk-mitigation measures come at a cost.

According to Bloomberg, using intermediaries to manage collateral reduces profitability by 20% to 30% compared to leveraging coins directly with a trading platform.

Despite the decline in margins, market participants are recognizing the necessity of these strategies, acknowledging that higher costs are now an inherent part of doing business in the crypto market.

“The FTX debacle was a wake-up call for the industry,” Le Shi, head of trading at crypto-focused market-maker Auros told Bloomberg.

Shi admitted that risks associated with leaving digital assets on exchanges were not always a priority, but said that has now changed.

“[…] we understand higher cost is going to be a way of doing business now,” he said.

Market depth reveals lower liquidity

Meanwhile, an analysis of crypto exchange’s market depth, or the market’s ability to absorb large orders without impacting the price, has revealed that liquidity is far lower now compared to the bull-run during the pandemic era.

According to a note by crypto researcher Kaiko, the number of trades that fall within 2% of the mid-price of Bitcoin (BTC) on exchanges is now down more than 60% since October of 2022.

“While this is partly due to structural reasons — market makers leaving the space after sustaining losses or permanently revising their risk management strategies after FTX — the low volatility environment is also playing a role in keeping liquidity providers out of the market,” Bloomberg cited the Kaiko note as saying.



Source link

  • Trending
  • Comments
  • Latest

UK Faces Two Decades of No Earnings Growth and More Austerity

July 29, 2023
Emirates Steel drops interest in Thyssenkrupp steel unit

Emirates Steel drops interest in Thyssenkrupp steel unit

July 27, 2023

Learn how to trade. For beginners

July 29, 2023
India’s parliamentary panel says tax dept should conduct evasion searches with caution

India’s parliamentary panel says tax dept should conduct evasion searches with caution

July 27, 2023

High Street Retailers Pin Hopes On Discount Splurge In Black Friday Fever

0

UK Faces Two Decades of No Earnings Growth and More Austerity

0

Learn how to trade. For beginners

0

Trading for beginners

0
Broker’s Call: Blue Dart Express (Buy)

Broker’s Call: Blue Dart Express (Buy)

September 23, 2023
Consensys Announces Sunset of Ganache and Truffle Toolkits, Marking the End of an Era for Ethereum Development

Consensys Announces Sunset of Ganache and Truffle Toolkits, Marking the End of an Era for Ethereum Development

September 23, 2023
Assam’s Biswanath Ghat named ‘Best Tourism Village of India 2023

Assam’s Biswanath Ghat named ‘Best Tourism Village of India 2023

September 23, 2023
The “Asian Games Letterbox” Malaysia Stop Concludes with Resounding Success, with Great Anticipation from the Local Populace for the Asian Games Hangzhou 2022

The “Asian Games Letterbox” Malaysia Stop Concludes with Resounding Success, with Great Anticipation from the Local Populace for the Asian Games Hangzhou 2022

September 23, 2023

Recent News

Broker’s Call: Blue Dart Express (Buy)

Broker’s Call: Blue Dart Express (Buy)

September 23, 2023
Consensys Announces Sunset of Ganache and Truffle Toolkits, Marking the End of an Era for Ethereum Development

Consensys Announces Sunset of Ganache and Truffle Toolkits, Marking the End of an Era for Ethereum Development

September 23, 2023

Categories

  • Business
  • Crypto
  • Economy
  • Forex News
  • Investing
  • Markets
  • More
  • Stock Trading
  • Trading for beginners

Site Navigation

  • Home
  • Contact Us
  • Stock Trading
  • Markets
  • Investing
  • Other Links
  • Privacy & Policy
Trading & Financial News

We bring you the fastest breaking news on Trading, forex, and finance submitted from credible and reliable news sources around the world.

© 2023 Tradinghow Useful forex analysis and financial news, submitted credible news sources around the world from tradinghow.

No Result
View All Result
  • Contact Us
  • Home
  • Economy
  • Crypto
  • Investing
  • Markets
  • Forex News
  • Stock Trading

© 2023 Tradinghow Useful forex analysis and financial news, submitted credible news sources around the world from tradinghow.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In