Expert: NYSE-like supervision can prevent crypto crashes

Economist Alex Krüger warns that unregulated market makers amplify crypto crashes by pulling back during volatility.

A prominent economist is pushing for a major change in the way cryptocurrency markets operate, arguing that they need rules similar to those of the New York Stock Exchange (NYSE) to halt extreme declines in the value 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 drops during volatile trading.

The case for Market Maker rules

In the post, the market expert explained that in the traditional finance industry (TradFi), market makers, who are responsible for providing liquidity, have a legal duty to keep trading orderly.

On the NYSE, these “Designated Market Makers” must continually offer to buy and sell specific stocks, even as prices fluctuate wildly. On Nasdaq, entities are required to follow Rule 4613, which requires them to post prices within a certain spread. If they don’t do this, they face sanctions from regulators, including losing their status as market makers.

“In crypto, market makers have no regulatory or contractual obligation to provide liquidity,” Krüger said. “During crashes, they can pull back, leading to massive liquidity shortages and amplified price declines.”

His conclusion was clear: “THIS MUST CHANGE.”

However, the conversation revealed the complexity of such a shift. Pelion Capital founder Tony respondedwhich we agree with in principle, but point out an important detail. He noted that TradFi market makers are protected by mechanisms such as ‘circuit breakers’, automatic trading stops that are triggered after a price moves a certain percentage, such as 5-10%, with the stops giving them time to manage their risks.

“Without these protections for middle managers, middle managers can suffer horrific losses,” Tony wrote, arguing that new obligations must be balanced with similar safeguards. Krüger agreed, adding that “exchanges can and should implement circuit breakers,” but suggested that doing nothing is more profitable for them.

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Community debate and market reality

The debate continued, with some Krüger’s blunt response was that the current system is a major reason why “exchanges and market makers rape retailers.”

However, others blamed the traders themselves, with one user insist that real accountability would only begin when market participants stopped chasing high-leverage unicorns.

The recent market turmoil underlines the need for stability. Earlier this week, the crypto sector lost more than $400 billion in value. Analysis from the Kobeissi letter pointed to extreme indebtedness as the main cause, noting that an average of 300,000 traders were liquidated per day.

At the time of writing, the market was still shaky: Bitcoin (BTC) lost more than 7% over the past week, Ethereum (ETH) fell almost 13% and Ripple’s XRP fell more than 10%, according to data from CoinGecko.