Market makers' profits collapsed by 30% after the collapse of FTX
Date: 2023-09-05 Author: Karina Ziganova Categories: BLOCKCHAIN, IN WORLD
Market makers in the cryptocurrency market faced difficulties after the collapse of the FTX cryptocurrency exchange. Bloomberg writes about it.
“While this is partly due to structural reasons – market makers exiting the market after suffering losses or continually rethinking their risk management strategies post-FTX – a low volatility environment also plays a role in keeping liquidity providers from entering the market,” they said. Kaiko analysts.
According to the agency, if earlier cryptocurrency market making was profitable, now the costs are rising, and investors are avoiding the crypto industry. Since November 2022, market maker profits are estimated to have fallen by 20-30% on average.
“The FTX disaster has been a wake-up call for the industry. The risks associated with leaving assets on exchanges were not always a priority, but that has changed and we understand that higher costs will now be the way to do business,” said Le Shi, head of trading at Auros.
Why market makers are leaving the crypto market
As a result, market makers Jane Street Group and Jump Crypto abandoned digital assets amid low trading volumes and declining volatility, as well as pressure from US regulators on crypto exchanges Binance and Coinbase.
Managing Director of Trading and Co-CEO of Singapore-based GSR Markets Meng Hwie Neo explained that market makers are increasingly looking to reduce their exposure to centralized exchanges in order to mitigate risk. This leads to lower profits.
Market makers withdraw assets from crypto exchanges
In June, one of the largest cryptocurrency market makers, Cumberland, withdrew about $70 million from the Coinbase and Binance cryptocurrency exchanges after the platforms faced a lawsuit from the US Securities and Exchange Commission.
It is known that the market maker took $46 million in Ether (ETH), 23 million Binance USD (BUSD) ($23 million) and other cryptocurrencies. The market maker transferred these BUSD from Binance to Paxos, the company that issued this stablecoin. Cumberland withdrew about 20,000 ETH (about $37 million) from Coinbase, and 4,850 ETH (about $9 million) from Binance.
