Crypto Market-Making Profit Margins Sink 30% in ‘Wake-Up Call’ Post-FTX

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Market making in digital tokens used to be a font of outsized profitability. The picture today is very different as costs jump and investors avoid a crypto sector scarred by a $2 trillion rout.

The price crash led to bankruptcies like that of the FTX exchange, leaving a mountain of coins stranded on collapsed platforms and stoking fears of ongoing upheaval. Market makers have stepped up efforts to mitigate the risk of being ensnared by future turmoil, a shift they say erodes margins.

“The FTX debacle was a wake-up call for the industry,” said Le Shi, head of trading at Auros. Risks stemming from leaving assets on exchanges weren’t always prioritized “but that’s changed and we understand higher cost is going to be a way of doing business now,” he said. Crypto market value topped $3 trillion back then but has sunk to $1.1 trillion, hurt by higher interest rates that crushed speculative ardor. Market-making firms Jane Street Group and Jump Crypto have pulled back from digital assets amid low trading volumes and ebbing volatility, as well as a US regulatory squeeze on exchanges such as Binance Holdings Ltd. and Coinbase Global Inc.

Monthly spot trading volumes at centralized exchanges slid 74% to $445 billion in August compared with January 2022, CCData show. Beyond spot tokens, market makers also operate in the larger digital-asset futures and options segment. Trading volumes for crypto derivatives have dropped too, roughly halving to $1.5 trillion over the same period.

 

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