Market Makers: The Hidden Power Behind Crypto Prices & How They Manipulate Markets (2025 Guide)

Market Makers: Invisible Architects of the Crypto Market and Their Real Power

 

Market makers (MM) are key players on financial markets, including cryptocurrency, providing liquidity and stability of trading. However their role often is surrounded by myths about manipulations and unlimited power over prices. In this article we will break down, who are market makers, how they work on centralized (CEX) and decentralized (DEX) exchanges, why their activity on CEX easier allows to manage prices, and how any person or company can become MM. Also we will touch questions of regulation and practical aspects of cooperation of projects with market makers.

 

Who are market makers and what for they are needed?

Market makers are professional participants of market (private traders, companies or financial institutions), who provide liquidity, constantly placing orders for purchase and sale of assets. Their main task is to maintain stability of trading, reducing spread (difference between price of purchase and sale) and preventing sharp jumps of prices. Without them markets would become illiquid: to traders it would be difficult quickly to sell or to buy asset at fair price.

 

How works market maker:

– Places two-sided quotes: simultaneously offers prices of purchase (bid) and sale (ask)

– Absorbs volumes: ready to buy and to sell assets even in absence of other counterparties

– Earns on spread: profit is formed at the expense of difference between bid and ask

– Uses algorithms: majority of MM apply high-frequency trading (HFT) and automated systems for instant reaction to market changes

 

Market makers on centralized exchanges (CEX): Phantom liquidity and management of prices

On centralized exchanges (for example, Binance, OKX, Bybit) market makers often have close connections with exchange itself or are its part. This gives them access to phantom liquidity — artificially created orders, which do not reflect real demand or supply, but create illusion of liquidity.

 

Why on CEX easier to manage prices:

1. Access to internal data: MM, affiliated with exchange, can see not only public order book, but also pending orders, stop-losses and take-profits of traders. This allows them to predict movements of prices and to manipulate them.
2. Phantom liquidity: MM can place large orders, which are not planned to be executed (spoofing), to create false impression of demand or supply. For example, having placed large order for sale, MM can cause panic and knock down price, to then buy out asset cheaper.
3. Coordination with exchange: Exchanges often recommend to projects their verified MM, and sometimes presence of MM is mandatory condition of listing. Such MM can act in interests of exchange, maintaining high volume of trades and stability of prices, even if this requires manipulations.
4. Unlimited possibilities for manipulations: Using algorithms of high-frequency trading, MM can instantly react to market changes and provoke artificial movements of prices, such as “liquidation” of stop-losses of retail traders.

 

> Example from practice: In 2024 year market maker of project on Solana artificially “lowered the bottom” under positive news — placed large order for sale, having caused panic and having knocked down price on 30%, to buy out asset cheaper.

 

Market makers on decentralized exchanges (DEX): Decentralized approach

In DeFi role of MM play automated market makers (AMM) and liquidity providers (LPs). Principles of work cardinally differ from CEX:

– Liquidity pools: Users contribute pairs of assets (for example, ETH/USDT)

– Absence of central control: There is no single organ, which could manipulate prices. However large players (whales) can temporarily distort liquidity, contributing large volumes into pools.

 

Profitability and risks: LPs earn on commissions from deals, but risk because of impermanent losses (impermanent loss) — changes of ratio of prices of assets in pool.

 

On DEX manipulations more difficult, but possible. For example, whales can use large pools for artificial change of price before large deal.

 

How to become market maker: Requirements and possibilities

Market maker can become any company or private person, possessing quality software, algorithmic bots and modern technological solutions. This democratizes access to market-making, especially in crypto-sphere, where regulation minimal.

 

Key requirements for start:

1. Technological infrastructure:

– High-frequency trading algorithms (HFT) for instant execution of orders

– Low latency (latency) of connection to exchanges

– Systems of management of risks and hedging

2. Capital: Sufficient volume of means for ensuring liquidity and covering possible losses
3. Reputation: On traditional markets important to have licenses and to observe regulatory norms. In crypto-sphere reputation often is built on experience and past successes

 

Why projects choose cheap variants:

Services of MM cost from $200 to $1500 in month for one trading pair on one exchange, depending on volume of liquidity and complexity of tasks. Projects, especially startups, often choose more cheap variants, to save resources. Exchanges usually recommend verified MM, but projects can hire and independent providers, if those correspond to requirements of exchange.

 

Regulation and persecution of market makers: Case of Andrewynin from GOBid

In 2023-2024 years USA activated struggle with manipulations on crypto-market. Vivid example — case of Andrewynin (Andrewynin), connected with company GOBid. Him accused in manipulation of prices through fictitious orders and fraudulent schemes. After detention and judicial proceedings Andrewynin was released on bail, but publicly declared, that ceases activity of market maker. This case showed:

– Reasons of persecution: Use of “phantom” orders (false requests, creating illusion of demand/supply) and manipulation of prices

– Tendency of regulators: USA (SEC and CFTC) begin to equate manipulations on crypto-market to crimes on traditional markets. However because of decentralization to prove violations difficult

– Consequences for industry: MM now more cautious in their strategies, but manipulations all equal occur, especially on low liquid assets

 

How market makers manage prices: Mechanisms of influence

MM can influence on prices both legally (ensuring liquidity), and illegally (manipulating market). Here main methods:

 

Legal methods:

1. Narrowing of spread: By means of constant placing of orders MM make trading more efficient. For example, on Bitcoin they can reduce spread to 0.01%, that reduces costs of traders
2. Stabilization of prices: In moments of panic MM absorb large volumes, preventing collapses. For example, during flash-crash on Binance in 2023 year MM bought out excess sales

 

Illegal methods (manipulations):

1. False orders (Spoofing): MM places large orders, which not plans to execute, to create illusion of demand/supply and to move price in needed direction
2. Scheme “pump and dump”: Coordination with other players for pumping of price of asset with subsequent dump
3. “Liquidation” of stop-losses: Artificial movement of price to levels, where gathered stop-orders of retail traders, to cause chain reaction of sales/purchases
4. Use of phantom liquidity: On CEX MM can manipulate order book, using access to internal data of exchange

 

Cost of services of market makers

Services of MM are paid by projects or exchanges. Range of prices wide and depends on:

– Liquidity of asset: For Bitcoin or Ethereum services cheaper because of high natural demand

– Quantity of exchanges: If MM works on several platforms, cost increases

– Volume of work: Support 24/7 more expensive, than several hours in day

 

Approximate rates (on 2025 year)

– One trading pair on one exchange: $200 – $5000 in month

– Multi-exchange liquidity (3-6 exchanges): $2,000 – $10000 in month

– Premium-services (high liquidity, 24/7): $10,000 – $50,000+ in month

 

Projects often choose more cheap variants, but exchanges can recommend concrete MM for ensuring reliability.

 

-Why market makers are both good and evil?

Positive sides:

– Provide liquidity: You can in any moment sell or buy asset without delays

– Stabilize market: Smooth out volatility, especially for low-liquid assets

– Reduce costs: Narrow spreads make trading cheaper

 

Negative sides:

– Manipulations: MM can “break” patterns on chart, provoking false breakouts

– Conflict of interests: MM often work for exchange or themselves are its part, that can lead to unfair game

– Risks for traders: Liquidation of stop-losses and fakeouts — usual practice

 

Conclusion

Market makers are not mythical creatures, but real participants of market, who play vital role in functioning of financial systems. On centralized exchanges they often possess access to phantom liquidity and internal data, that facilitates manipulations of prices. On decentralized exchanges manipulations more difficult, but possible through large liquidity pools. To become MM can any, who possesses technological resources and capital, and projects often choose cheap variants of services, despite risks. Case of Andrewynin from GOBid showed, that regulators begin to pay attention to manipulations, but effective regulation so far absent. For traders understanding of mechanisms of work of MM — key to survival: necessary to watch for volumes, order book and not to succumb to false movements. As said one of experts: “Market maker — not shark, but part of ecosystem. But to swim with sharks necessary cautiously”.

ⓒ Yan Krivonosov