Market Makers Manage Risk and Pricing Dynamics in Altcoin Trading
Written by Ohris M. Greyoon, Blockchain & Crypto Expert
Source: Coinmarketcap
Updated: Dec 26 2025- Role of Market Makers: Market makers adjust prices and spreads to manage inventory risk rather than predict price direction, a strategy particularly evident in small-cap altcoin trading, where retail orders can directly influence quotes.
- Quote Skew Mechanism: When market makers accumulate excessive short positions due to retail buying, they deliberately lower quotes to attract sell-side liquidity, causing prices to drop immediately after a purchase, which is a result of market mechanisms rather than targeted manipulation.
- Impact of Spread Widening: As inventory imbalances worsen, market makers widen bid-ask spreads and reduce trading frequency, leading to poorer fills and increased slippage for traders, a phenomenon especially pronounced in illiquid small-cap altcoin markets.
- Challenges for Retail Traders: Compared to institutional traders, retail participants predominantly place aggressive market orders without hedging or inventory-offset mechanisms, making them more susceptible to becoming the counterparty to market makers in thinly traded markets, resulting in a “bad timing” trading experience.
About the author
Ohris M. Greyoon
Ohris M. Greyoon holds a Master’s in Computer Science from MIT and has 10 years of experience in blockchain technology and cryptocurrency markets. A pioneer in decentralized finance (DeFi) analysis, he leads Intellectia’s Crypto News, offering cutting-edge insights into digital assets.
