What Is Crypto Market Making & Why All Startups Need It?

One of the most significant aspects of any investment is the capacity to effectively acquire or sell that asset whenever and wherever the investor desires. After all, what is the point of having lots of capital if you can not take advantage of it?

You may think: "Well, there is nothing new under the sun - it's common knowledge." Yet still, hundreds of crypto entrepreneurs do not take this rule seriously until after their token gets listed and just so happens to have "liquidity issues."

Developing a one-of-a-kind idea, hiring the best smart contract developers, crafting a killer marketing strategy - all of these token launch preparations require lots of resources, and to waste them all by not planning any crypto market making activity is not wise.

Crypto market making is indeed a driving force and a quality mark of any emerging startup. But, before proceeding to what crypto market making is and how it is crucial for every token and trading platform, let's break down liquidity first.

What Is Crypto Liquidity?

Crypto liquidity refers to the ability of a cryptocurrency to be easily bought or sold on the open market without causing major fluctuations in its price.

Liquidity is essential for investors since it allows them to quickly buy or sell cryptocurrencies without worrying about the impact on the price it may cause. It also allows them to make more reliable investments because they can quickly liquidate their assets without suffering significant losses. The high level of liquidity provides a measure of security to investors as they can be sure they won't get stuck with an asset they can't sell.

From here arises a question - how do you know that the token or exchange you are trading on is liquid?

Liquidity can be measured in several ways:

• Pre-defined metrics - price-tracking services for crypto assets, such as CoinMarketCap and CoinGecko, have established their liquidity indicators to help investors analyze the differences in tokens' liquidity among marketplaces. CoinGecko utilizes the Trust Score metric, while CoinMarketCap uses a Liquidity Score.

• Trading volume - a higher trading volume implies greater liquidity and market efficiency, while a lower trading volume indicates low trading activity and, therefore, less liquidity.

• Market capitalization - it represents the total number of coins in circulation multiplied by the current market price per unit. A cryptocurrency with a large market capitalization indicates an increased number of people willing to invest in this specific coin.

• Orderbook depth - the deeper the orderbook depth for a certain currency pair suggests that there is a significant amount of open orders on either the bid or ask side. The lower the depth of a market, the simpler it is for larger market orders to change the price, which is bad for traders. Before trading, it is critical to understand the depth of a market since depending on transaction volume alone is sometimes insufficient for assessing a market's liquidity.

• Tight spread - the bid-ask spread is one of the first things you should consider when measuring liquidity. Note: tighter spreads indicate better liquidity, whereas broader bid-ask spreads indicate less liquid or volatile markets. When the bid-ask spread is wide, entering and exiting a position at a reasonable price might be more difficult.

Liquidity helps traders identify the best coin to invest in and the most healthy exchange to trade on.

No cryptocurrency exchanges or tokens, even the most popular ones, are immune to liquidity problems. However, the tokens undergoing ICO/IDO/IEO are the most prone to suffer from the lack of liquidity simply because they are new and unknown to potential investors. That's why most cryptocurrency ventures secure some funds to hire a cryptocurrency market maker.

Who is a crypto market maker?

A crypto market maker is an individual or firm that provides liquidity to a cryptocurrency exchange or market by placing limit orders on both sides of the order book. Market makers are typically responsible for ensuring that buyers and sellers can trade quickly and easily at the best prices. In addition, market makers often use advanced algorithms and strategies to place orders, adjust prices, and manage risk. This type of trading activity helps to make markets more efficient, deepen liquidity, and reduce spreads, thus benefiting both buyers and sellers.

Cryptocurrency market maker for exchanges

MM for CEXes

Centralized crypto exchanges, just like traditional financial markets, operate through orderbooks. In this case, the market maker’s area of responsibility covers tight bid-ask spread control, trading volume management, orderbook depth building, and the minimization of volatility.

A well-managed and healthy exchange is precisely what token owners seek. The more liquidity an exchange has, the more trading activity a new token receives once listed. Not many ambitious projects would choose to work with platforms indicating a lack of interest and crypto liquidity. There is no potential in such platforms, and crypto entrepreneurs are perfectly aware of it.

MM for DEXes

Compared to CEXes, decentralized exchanges are built on a completely different concept - the orderbook is replaced by an automated market maker algorithm (AMM) that provides liquidity in a permissionless and anonymous way through liquidity pools.

Since the liquidity on DEXes is provided automatically, the duty of a market maker comes down to managing and creating the liquidity pools, ensuring the users are incentivized to fund pools themselves.

Crypto market maker for tokens

No matter what stage of your token's lifecycle, hiring a crypto market maker is an absolute must for its efficient performance on crypto exchanges.

So, here is what you can expect from a market maker & liquidity provider:

• Price and trade volume support

• Orderbook management

• Additional revenue from arbitrage trading

• Built-in algorithms for liquidity risk management

• Alluring more sophisticated investors to your project

• Pre-launch and after-launch assistance

With so many players in the crypto market making arena, how do you choose the one who truly knows what it is doing?

I Say the Best-in-Class Crypto Market Maker, You Say .. BitQuant!

BitQuant Capital is a value-driven market maker and a leader in cryptocurrency trading. We are dedicated to helping token and exchange projects of all sizes achieve the highest level of liquidity and trading activity on multiple markets.

In business since 2019, we've had both outstanding achievements and missteps, but we've learned from them. So far, we have supervised a total of 12 successful token releases.

We are your liquidity partner in crime that has enough knowledge in both crypto and financial markets to provide you with the expertise and technology you need to take your project off the ground and make it succeed.

If you're looking for a liquidity provider that is 100% invested in your crypto launch process, then BitQuant is a perfect choice. And a free consultation with one of our experts is the best way to kickstart your market-making strategy.

Please fill out the brief form to reach out to us immediately or visit our website to learn more about our solutions and services.