Market Makes, market animators, play a key role in the functioning of various financial markets, including cryptocurrencies. Their main task is to ensure liquidity, which allows easier purchase or sale of assets without significant price fluctuations. Only that their activities are also associated with controversies.
The role of the market makers in providing liquidity on the cryptocurrency market
Market Makes operate by constantly placing and selling and sales orders for specific cryptocurrency assets. Thanks to this, they maintain the constant presence of offers on both sides of the market, which reduces the spread between the purchase and sale price, and most often stabilizes prices. In practice, this means that investors can implement transactions faster and at more predictable prices. Without the participation of the market makers, the markets would be less liquid, and the differences between purchase and sale prices could be much larger, which would hinder trade.
The above description shows that the Market Makeers play an important role in ensuring liquidity. At the same time, however, there are known cases in which some of them are involved in manipulative activities. It can be about the so -called “Wash Trading”, consisting of artificial overstating the volume of trading by repeatedly buying and selling the same assets. Such practices can mislead investors as to the actual liquidity and value of a given value.
Operation Mirrors
An example of the Market Makes Market Makes market is events related to the FBI surgery with the cryptronism token Mirrors. The services within it created their own token and the fictitious company Nexfundai. The goal of the operation was to identify and punish entities involved in market manipulations, such as “Pump and Dump” and “Wash Trading”. As a result of this operation, a dozen or so people were accused of participating in illegal practices aimed at manipulating the market.
As part of the FBI operation in Portugal, Alexei Andryunin, who was from Russia, was detained, who headed Gotbit Consulting LLC. In total, 18 people heard the allegations, including Gotbit employees, Fedor Kedrov and Kavi Jalila, and bosses of four other companies. Other detainees came from the USA, Great Britain and Portugal. As part of the investigation, cryptocurrencies worth over USD 25 million were taken over and disable several commercial bots that manipulated the markets.
What was exactly about? The accused created companies that emitted tokens, around which artificial media and market noise was made. With the help of bots, “empty” transactions were generated, thus creating high volumes, which attracted investors. When in this way it was possible to raise the valuation of tokens, their emitters dropped huge quantities on the market and left a given market with considerable profit. Naive investors remained with almost unrepired assets.
Cooperation of exchanges with Market Makes and potential conflicts of interest
Cooperation of cryptocurrency exchanges with Market Makes is something normal: a common practice aimed at increasing market fluidity and efficiency. Only that in some cases there may be a conflict of interests, especially when stock exchanges or related entities trade on their own platform, potentially acting even against their clients.
The greatest risk of conflict of interest appears when the Market Maker has access to customer data. If the stock exchange provides him with data on Stop Losses, orders and liquidity levels, it allows him to “hunt” for these positions and such manipulations with the price that he can mainly lead the market for himself “by the hand” and detect most players.
How not to get dishonest Market Maker?
How to protect yourself against such practices ?? It is necessary to avoid exchanges with suspicious connections with the Market Makes – it is worth checking if the stock exchange also serves as Market Makera or is associated with trading companies. (It is always worth remembering that not every marker maker is dishonest!)
A certain solution is to use DEX (decentralized exchanges). It is also worth looking at suspicious market movements – sudden price jumps in a short time may indicate deliberate manipulation.
Summary
The conflict of interests between the stock exchanges and Market Makes is one of the biggest problems on the cryptocurrency market. Exchange, instead of acting as neutral intermediaries, often cooperate with Market Makes or play this role themselves, which leads to situations where users can simply be manipulated and in some sense cheated. That is why it is important that investors are aware of such threats and take appropriate steps to protect their funds.
You can buy Bitcoin and other cryptocurrencies in a simple and safe way on the Zondacrypto stock exchange.
