Battle of the Bots: How Market Makers Fight It Out on Crypto Exchanges

In the months between December 2017 and March 2018, I built a bot which executed around $50 million worth of cryptocurrency market-making trades. This is the story of how I got into market making, the theory behind the bot’s algorithms, and the competition that grew between market-makers.

FOMO

It’s November 2017 — Bitcoin’s price is rapidly rising towards the $10,000 mark. Its exponential rise in price is pushing it further into mainstream consciousness each week, attracting even more investors, pushing the price further up.

During this time, I’m away on holiday with two friends. Both of these friends had invested not insignificant amounts of their own money into Bitcoin, and were profiting off of the rising price. As the only one of the three who hadn’t even considered investing before, I feel like I’m missing out.

When I get back home from travelling, one of the first things I do is find an online cryptocurrency exchange and deposit $500 into an account. Wanting to ride the wave, my plan is simple: buy $500 worth of Bitcoin, and increase my investment if I see returns.

Spreads

Before I pull the trigger on my $500 investment though, I notice something strange; the exchange which I was…