🏦 Market Makers: How the Main Manipulators of the Cryptocurrency Market Operate

What You Need to Know About Liquidity and Its Sources

Before understanding the role of market makers, it’s important to grasp where liquidity in the market actually comes from. Liquidity providers are the entire ecosystem of participants that make trading possible. This category includes ordinary users acting as LPs in decentralized pools (like Uniswap), large institutional investors, various funds, and of course, professional market makers.

While most LPs operate passively—simply holding assets in pools and earning commissions—market makers act quite differently. They are not just liquidity providers; they are professional market players, companies, and funds that constantly place buy and sell orders. Their goal is not just to earn commissions but to profit from spreads and price fluctuations.

Why Do Exchanges Need Market Makers

Cryptocurrency platforms actively seek specialized firms to support liquidity because it is critical for trading operation. First, without professional traders, spreads would be much wider, and trading less comfortable. Second, when a new trading pair or token is listed, market makers help stabilize the price, preventing sharp jumps. Third, surprisingly, their activity often protects the market from complete chaos.

The practical scheme works as follows: the exchange contracts with a market maker for a new listing. The trader receives tokens at a fixed price in advance. When trading opens, they place large buy and sell orders, creating a narrow spread and smoothing out spikes. The market maker profits from two sources: the difference between buy and sell prices plus a share of the exchange’s commissions.

Contractual Obligations: Why Market Makers Sign NDAs

On centralized exchanges, market makers almost always sign non-disclosure agreements (NDA). This is not just a formality; it is a serious legal obligation that protects the platform’s interests.

The reasons are obvious: market makers gain access to confidential data—information about trading volumes, order book structure, liquidity flows, technical APIs. Exchanges often provide them with special conditions: reduced commissions, priority access to new listings, information about upcoming events. Such information in the hands of competitors or traders can lead to manipulations and losses. NDA protects market integrity.

Five Ways Market Makers Manipulate Prices

Market makers possess vast resources, access to advanced algorithms, and insider information. This enables them to influence market movements through various methods.

Spoofing — False signals of demand and supply. The technique involves placing large orders that are not intended to be executed. The market maker places a huge buy order, creating the illusion of strong demand. Retail traders see this and start buying, pushing the price up. Once the movement begins, the order is canceled, and the market maker quietly sells assets at an inflated price.

Pump and Dump — Coordinated inflation and collapse. A group of market makers or a single large player begins massively buying an asset, artificially raising the price. This attracts retail traders who see the rise and also start buying. When the price reaches a peak, the market maker sells massively, crashing the market. Retail traders incur losses, and the market maker profits.

Stop Hunting — Triggering protective orders. Market makers monitor levels where many stop-loss orders are clustered. If they see, for example, that at $40,000 for BTC there are many stop orders, they may intentionally push the market down to that level, gather liquidity from the stops, and then quickly reverse the price. Traders suffer losses, and the market maker captures liquidity.

Wash Trades — Artificial volume inflation. The market maker simultaneously buys and sells the same asset, creating the illusion of active trading and high liquidity. In reality, it’s just trading with itself. Other traders see high volumes and think the market is active, so they join. Meanwhile, the market maker enters a favorable position before the real price movement.

Spread Manipulation — Controlling the difference between prices. Market makers control not only volumes but also the size of the spread. To raise the price, they narrow the spread, encouraging buyers to enter the market. To lower the price, they widen the spread, making it harder to buy and causing panic among traders.

Behind the Scenes: Major Players in Market Making

Behind market making are specialized firms with access to enormous capital and advanced algorithmic systems. Among industry leaders are Jump Trading, one of the largest high-frequency trading firms in the world. Citadel Securities controls a significant share of trading volumes on both traditional and crypto markets. Jane Street is known for its algorithmic trading on both types of markets. Alameda Research, before its collapse, was a dominant market maker in the crypto industry.

These firms are often backed by large funds, exchanges themselves, and institutional investors who finance market makers to ensure liquidity on their platforms.

Final Conclusion: Market Makers Are Whales Managing the Market from the Shadows

At first glance, market makers seem to be benefactors of the market, providing liquidity and stabilizing prices. In reality, they are highly professional manipulators who use their informational and technical advantage to extract maximum profit.

They have direct contacts with exchanges, sign confidentiality agreements, and operate with billions of dollars, employing complex algorithmic strategies. Ordinary retail traders are in a completely unequal position: they only see what’s on the surface, while market makers see the entire market and can predict its movements.

That’s why most retail traders lose: they trade against professional players who know much more about the market and have greater resources. Market makers are like whales, controlling the market from behind the scenes while other traders remain unaware of the true mechanisms behind price movements.