T should not be too familiar with market makers. On October 11, most ALT short-term depths were reduced by about 70%, which is typical behavior of market makers pausing orders or narrowing the quote range, commonly known as withdrawing liquidity, rather than being liquidated, because the mechanism of market makers is not directional in nature.
The real professional market makers do not bet on direction or make money in any direction; instead, they profit from the price difference, which is traditional spread trading. The most typical position is also a hedging structure. Let me give you an example:
Market Maker
Buys 1 $BTC at $120,000
Sells 1 $BTC at $120,100
If both sides are executed, they earn a price difference of $100, while holding a reverse position on futures or options platforms like CME to ensure overall exposure to directional risk is minimized.
Therefore, a price crash means two things for market makers:
The quote range widens (spread becomes wider)
Liquidity risk increases (may not be able to execute trades)
However, due to the existence of directional hedging, they will not be forcibly liquidated just because the price drops. So, to put it simply, if BTC drops from $120,000 to $100,000, their positions remain balanced and will not lead to liquidation. Losing money is possible, but the probability of being liquidated is too low.
What truly causes market makers to incur losses is not the direction of the market but the asymmetry of trades when depth disappears. When the market fluctuates violently, and orders on one side are completely consumed while there are no takers on the other side, they may temporarily incur losses, but the system will automatically reduce positions rather than being forcibly liquidated.
This is actually similar to the logic of Bitcoin spot ETFs; the AP logic of ETFs is a typical market maker logic.
This article is sponsored by #Bitget ｜ @Bitget_zh
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