Market Makers and Liquidity Provision in Cryptocurrency Markets


Crypto liquidity is a crucial factor determining the ease with which assets can be bought or sold without causing significant price changes. Market makers are essential in providing this liquidity, ensuring cryptocurrency markets function smoothly. This article explains the role of market makers in crypto, their different types, and the practices and regulations surrounding crypto market making.

What is a Market Maker in Crypto?

A market maker in the cryptocurrency market is an entity or individual that provides liquidity by continuously placing buy and sell orders on a particular cryptocurrency. Their primary role is to ensure enough volume on both sides of the market, thus facilitating trades and maintaining the market’s overall health. Market makers profit from the spread between the buy (bid) and sell (ask) prices they quote.

For example, consider a market maker operating in the Bitcoin market on a cryptocurrency exchange like WhiteBIT or another large platform. The market maker might place a buy order for BTC at $64,950 and a sell order at $65,050. The difference between these two prices, known as the spread, is $100. When a trader wants to buy BTC, they can purchase it from the market maker at $65,050. Conversely, when a trader wants to sell BTC, they can sell it to the market maker at $64,950.

By continuously placing these orders, the market maker ensures that there is always a supply of BTC available for buyers and a demand for BTC for sellers. This activity helps maintain market liquidity, meaning that trades can be executed quickly and with minimal price impact. The market maker’s profit comes from the spread – the $100 difference between the buy and sell prices. Even though the profit on each trade might be small, the high volume of trades can result in substantial overall earnings for the market maker.

This constant buying and selling by market makers is crucial for preventing large price swings and ensuring that the cryptocurrency market remains active and efficient. Without market makers, traders might struggle to find counterparties for their trades, leading to increased volatility and less efficient markets.

Main Types of Crypto Market Makers

Market makers in crypto can be broadly categorized into three main types: proprietary trading firms, dedicated market-making firms, and high-frequency trading (HFT) firms.


  • Proprietary trading firms use their capital to trade cryptocurrencies for profit. They employ sophisticated algorithms and strategies to provide liquidity and capture spreads. These firms often deeply understand market mechanics and leverage their expertise to maintain efficient markets.
  • Dedicated market-making firms. These firms specialize solely in market making. They are contracted by cryptocurrency exchanges to participate in their market making programs like this one:, and provide liquidity for specific assets. Their primary function is to reduce price volatility and improve the overall trading experience by ensuring that orders can be executed immediately and at fair prices.
  • High-frequency traders (HFT). HFT firms use advanced technology to execute many trades in fractions of a second. They are crucial in providing liquidity due to their high trading volume and rapid response to market changes. HFT firms rely on speed and automation to capture small price differences, thus maintaining tight spreads.

Crypto Market Making and Manipulations

While market makers are essential for maintaining liquidity, some engage in manipulative practices that can distort the market. One common malpractice is wash trading, where a trader simultaneously buys and sells the same asset to create an illusion of higher trading volume. This can mislead other market participants about the asset’s liquidity and demand.


Another example of market manipulation involves spoofing. In spoofing, a false market maker places large buy or sell orders with no intention of actually executing them. A large order can create a false impression of heavy selling pressure, causing other traders to panic and sell their crypto at lower prices. Once the price drops due to this perceived selling pressure, the spoofing market maker cancels their large sell order and buys assets at lower prices.

Regulatory frameworks like the European Union’s Markets in Crypto-Assets (MiCA) have been established to combat such practices. Published on June 9, 2023, MiCA aims to create a unified regulatory environment for cryptocurrencies across Europe. It includes provisions to prevent market manipulation, ensure transparency, and protect investors. MiCA seeks to curb unethical market-making practices and promote a fair trading environment by setting clear rules and standards.

Market makers play a key role in the cryptocurrency ecosystem by providing the necessary liquidity to ensure smooth and efficient markets. Understanding the different types of market makers and their functions helps comprehend their true role in maintaining market stability.