- The crypto market isn’t as profitable to traders as it was a year ago, according to Bloomberg.
- Market makers were reportedly adapting to reduce the risks, but their efforts were affecting their profit margins.
- FTX’s debacle is leading traders and market makers to prioritize risk management.
The crypto market‘s profit margins sank 30% in comparison to last year, according to Bloomberg. The market used to be profitable for traders, but after the bankruptcy of the FTX exchange, investors started to avoid the sector. The article shed light on traders’ concerns about rising costs and lawsuits against crypto exchanges.
The crash that happened after FTX declared bankruptcy led to many coins being stuck on the collapsed exchanges. The report shared that market makers were increasing their efforts to reduce the risks of similar future situations; however, their attempts led to a decrease in their profit margin.
Some liquidity providers took a different approach and started diversifying their activity across more exchanges. The article further pointed out that Auros, GSR Markets, and Wintermute Trading stored digital-asset inventories away from trading venues and used them as collateral.
Collateral was reportedly kept at custodians, and if an exchange fell, then only the tokens that were obtained from lenders were exposed. Auros, an algorithmic trading and market-making firm said that using intermediaries led to a 20-30% drop in profitability if compared with depositing and leveraging up coins directly with a trading site.
According to the report, traders weren’t prioritizing risks arising from leaving assets on exchanges, but after FTX collapsed in November 2022, the crypto industry changed. Le Shi, Head of Trading at Auros, said, “The FTX debacle was a wake-up call for the industry.” Moreover, he added, “We understand higher costs are going to be a way of doing business now.”
The article also mentioned that crypto traders and market makers benefited from the bull run of 2021. Wintermute, which is a global algorithmic trading firm and liquidity provider in digital asset markets, had $1.5 trillion in trading volume at that time. The trading firm earned a profit of $582 million on $1.05 billion in revenue.
Other than FTX’s crash, the article mentioned that higher interest rates led to traders pulling back from digital assets. Furthermore, several U.S. Securities and Exchange Commission (SEC) lawsuits against crypto exchanges such as Binance and Coinbase led to uncertainty in the crypto trading market.