Do we need to brace ourselves for liquidity strains? Liquidity dried up in 2022, and while analysts expect the 2024 BTC ETF approval will help boost trading volumes, the truth is that the ‘Alameda Gap’ remains, according to Ben Roth from Auros.
Even as stablecoins expand and bring greater liquidity inflows to the market, analysts posit that the market has yet to recover fully and may face regulatory pressures led out of the US later this year.
However, liquidity fluctuations are not a new phenomenon for market makers such as Auros, which claims to have established itself as a resilient industry steward amidst the volatility of bull and bear market cycles.
Roth, co-founder and CIO of Auros, a global algorithmic trading and market-making firm, believes that it has never been more crucial for investors and ecosystem projects to access high-quality, stable liquidity in this market.
But how are market-makers adapting to meet changing liquidity needs in a changing market? And how do we foresee liquidity evolving in a market that is on the cusp of recovery?
Our conversation with Ben Roth is shared below.
Crowdfund Insider: Can you tell me more about Auros and how the company fits in the digital asset ecosystem?
Ben Roth: Auros ranks among the global firms in crypto-native algorithmic trading and market making, consistently delivering high-quality liquidity to over 50 prominent centralised and decentralised cryptocurrency trading platforms, alongside various ecosystem projects.
Last year, we secured a US$17M investment led by global high-frequency trading firm Vivienne Court. This investment helped us expand our strategic market making business with an aim to cultivate healthy, liquid markets for all our partners. Our daily trading volume also exceeded US$4B in 2023, reflecting our growth and lasting commitment to operate as a reliable ecosystem steward that protects the interests of its stakeholders amidst a volatile and intricate cryptocurrency industry.
Our overarching objective is to instill confidence and trust in the future of crypto.
Crowdfund Insider: Why is market making important to an ecosystem, and what are some of the existing challenges in the space?
Ben Roth: Market makers are instrumental in the digital asset ecosystem as we provide the necessary liquidity to platforms and projects, enabling assets to be traded smoothly and efficiently. This liquidity is essential to ensure accurate price discovery and reduce market volatility. However, despite this critical role, many aspects of market making remain obscure to both the public and the industry at large.
Given the industry’s technical complexities, barriers to access to information affect both newcomers and insiders. Such information asymmetry, combined with changing regulations, has made the industry prone to bad actors, as demonstrated by the failures of ecosystem players in the past two years.
Auros is stepping into the spotlight to address these challenges head-on. As market makers, we understand the industry’s longstanding issues, such as the lack of project longevity and transparency, as well as the need for a consistent supply of high-quality liquidity. Our approach is multifaceted, combining deep expertise, cutting-edge technologies, and proprietary trading strategies.
One key aspect that sets Auros apart is our unique partnership model, which is built on transparency and trust. We believe that by demystifying the intricacies of market making and fostering open communication, we can empower both the community and the projects we support to make informed choices as they develop. We aim to not only provide liquidity but also contribute to the long-term growth and stability of the cryptocurrency ecosystem.
Crowdfund Insider: What is your outlook on liquidity this year given market developments around the BTC ETFs and upcoming bitcoin halving?
Ben Roth: The convergence of several key factors, including the emergence of Bitcoin exchange-traded funds (ETFs), the impending halving event, and the potential for greater regulatory clarity, sets the stage for a year that is characterised by robust liquidity and heightened trading activity in the market. This landscape not only reflects the increasing mainstream acceptance of digital assets but also presents a myriad of opportunities for institutional and retail investors seeking to capitalise on the burgeoning market.
Bitcoin ETFs, in particular, are poised to play a pivotal role in driving liquidity and market activity. These financial instruments, which track the price of Bitcoin, offer traditional investors a regulated and familiar means of exposure to the cryptocurrency market. Their introduction is expected to attract a significant influx of capital, deepening the market’s liquidity pool and enhancing its overall stability.
Similarly, the upcoming halving event, which is slated to occur in the coming months, is likely to fuel a surge in trading activity. Historically, Bitcoin halving events have been associated with significant price rallies, as the reduced supply of new coins entering circulation tends to drive up demand and, consequently, prices. Again, this anticipated price volatility presents lucrative trading opportunities for market participants.
Crowdfund Insider: As digital asset regulation becomes the norm in multiple jurisdictions, how does this influence liquidity trends?
Ben Roth: As regulatory standards continue to evolve and become more uniform across global markets, the digital asset industry is on the cusp of a new era of accelerated growth and development. This convergence of regulatory frameworks will foster greater trust and confidence among investors. It will also pave the way for enhanced liquidity and increased market activity levels.
It is expected that the harmonisation of regulations will create a more conducive environment for innovation and expansion in the digital asset space while lowering the barriers to entry. Increased confidence among investors, coupled with enhanced liquidity and market activity levels, will create fertile ground for ecosystem development.
Retail investors, in particular, stand to benefit from this development, as they will have greater access to a wider range of investment opportunities. This increased accessibility will likely democratise the market, and allow greater market participation.
Institutional investors are also expected to feature in driving liquidity and market activity within the ecosystem. With greater regulatory clarity and a more stable market environment, they are likely to allocate more capital to digital assets, contributing towards the market’s liquidity pool and increased trading volumes.
Crowdfund Insider: What would you say are the high-growth regions for digital assets?
Ben Roth: As digitalisation sweeps across the Asia-Pacific region, an increasing number of countries are embracing innovative financial solutions to meet the growing demand. This trend has fueled a surge in blockchain technology development and digital assets adoption, with governments such as Singapore, Hong Kong, and Japan each taking proactive steps to create regulatory frameworks in response to the burgeoning industry.
A key contributor is Asia-Pacific’s tech-savvy population, which has catalysed the adoption of digital assets. With smartphone penetration expected to reach 85% by 2026, there is a burgeoning demand for digital financial products and services, further propelling the growth of the digital economy in the region. As more businesses and individuals turn to digital solutions for their financial needs, the adoption of blockchain technology and digital assets is expected to continue in an upward trajectory well into 2024 and beyond.
Overall, the shift toward a digital economy, driven by a conducive regulatory environment and a digitally-native population, Asia-Pacific has created fertile ground for the growth of digital assets, and this trend is expected to continue into the next years.