Economist Alex Krüger warns that unregulated market makers amplify crypto crashes by withdrawing during volatility.
A prominent economist is pushing for a major change in how cryptocurrency markets operate, arguing they need rules similar to those of the New York Stock Exchange (NYSE) to stop extreme drops in the values of digital assets.
In a November 6 post on X, Alex Krüger said the absence of regulated market makers has left crypto vulnerable to drastic price collapses during volatile trading.
In the post, the market expert explained that in traditional finance (TradFi), market makers, responsible for providing liquidity, have a legal duty to keep trading orderly.
On the NYSE, these “Designated Market Makers” must continuously offer to buy and sell specific stocks, even when prices are swinging wildly. On Nasdaq, the entities are required to follow Rule 4613, which obligates them to post quotes within a set spread. If they fail to do so, they face penalties from regulators, including losing their status as market makers.
“In crypto, market makers have no regulatory or contractual obligation to provide liquidity,” Krüger stated. “During crashes, they can and do withdraw, leading to massive liquidity gaps and amplified price drops.”
His conclusion was clear: “THIS MUST CHANGE.”
The conversation, however, revealed the complexities of such a shift. Pelion Capital founder Tony responded, agreeing in principle but pointing out a key detail. He noted that TradFi market makers are protected by mechanisms like “circuit breakers,” automatic trading halts that trigger after a price moves a certain percentage, like 5-10%, with the halts giving them time to manage their risks.
“Without these MM protections, MMs can suffer horrific losses,” Tony wrote, arguing that any new obligations must be balanced with similar safety measures. Krüger agreed, adding that “exchanges can and should implement circuit breakers,” but suggested that inaction is more profitable for them.
The debate extended further, with some X users questioning the very idea of copying traditional finance, calling the framework “dumb and unsophisticated compared to crypto.” Krüger’s blunt reply was that the current system is a key reason “exchanges and market makers RAPE retail traders.”
Others, however, blamed the traders themselves, with one user insisting that real accountability would only begin when market participants ceased their pursuit of high-leverage unicorns.
Recent market turmoil highlights the need for stability. Earlier in the week, the crypto sector lost over $400 billion in value. Analysis from the Kobeissi Letter pointed to extreme leverage as the main cause, noting that an average of 300,000 traders were being liquidated per day.
At the time of writing, the market was still shaky, with Bitcoin (BTC) losing over 7% in the last week, Ethereum (ETH) being down almost 13%, and Ripple’s XRP having fallen by more than 10%, according to data from CoinGecko.
