According to Bloomberg’s report dated September 5, 2023, liquidity providers Auros, GSR Markets Ltd., and Wintermute Trading Ltd. have disclosed that the bankruptcy of the FTX exchange has led to a 30% reduction in profit margins for crypto market makers. “The FTX debacle was a wake-up call for the industry,” commented Le Shi, head of trade at Auros.
In the wake of the FTX bankruptcy, market makers are re-evaluating their risk profiles and are advised to diversify their operations and store their digital assets away from trading platforms. Auros further elaborated that using intermediary services for collateral storage contributes to a 20%-30% decline in profitability, compared to leveraging coins directly on a trading site.
Meng Hwee Neo, managing director of trading and Singapore co-head at GSR Markets, told Bloomberg that market makers are increasingly focusing on Bitcoin and Ether in a “flight to quality” strategy. While this shift may result in slimmer profit margins, it offers greater volume and business opportunities.
CCData statistics, as cited by Bloomberg, reveal that monthly spot trading volumes on centralized crypto exchanges have plummeted 74%, dropping to $445 billion in August 2023 from $1.1 trillion in January 2022.
Market-making firms like Jane Street Group and Jump Crypto are retreating from the digital asset market due to low trading volumes, increased volatility, and heightened U.S. regulatory scrutiny on exchanges such as Binance Holdings Ltd. and Coinbase Global Inc.
The repercussions of FTX’s insolvency extend beyond market makers to encompass nearly all entities in the crypto sector. BlockFi’s CEO, whose company also went bankrupt, previously admitted to disregarding advice from their risk management experts on lending assets to Alameda Research and FTX.
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