Wintermute Stops Trading Amid Flash Crash

Prominent market maker Wintermute informed Decrypt that it halted trading during last week’s flash crash, which caused over $19 billion in crypto liquidations. This occurred as Bitcoin and other asset prices dropped following President Trump’s latest tariff threats against China.

The firm clarified that its decision was not about capitalizing on the situation, as some users speculated, but due to violations of its internal rules during the market downturn.

Wintermute Desk Strategist, Jasper De Maere, explained that their approach is highly rule-based, incorporating a delta-neutral strategy that aims for no directional exposure to price movements.

Market makers like Wintermute actively buy and sell cryptocurrencies to uphold price stability, ensure liquidity, and enhance market efficiency, employing pre-defined rules and automated trading systems.

During Friday’s crash, Wintermute faced a break in its rules, necessitating a regrouping.

“For example, if we’re shorting a perpetual contract for any hedging reasons, and then we also get liquidated during volatile spikes, it complicates our strategy,” said De Maere. “The violence and speed of the liquidation cascade hindered our ability to continue making markets during that specific window.”

De Maere confirmed that Wintermute ceased trading for a “very short time” while assessing the situation, though he didn’t specify the duration or the exact rules broken.

He also suggested it’s reasonable to assume that other market makers faced similar issues on that day. LO:TECH confirmed to Decrypt that it too temporarily halted trading, with its CTO, Marcus Horsley, stating:
“Our systems functioned as designed: the risk engine’s circuit breakers activated and removed our quotes from the market. The exchange APIs were unreliable, delaying our return to full capacity.”

Rumors spread on social media speculating that the crash stemmed from a “coordinated withdrawal” by market makers aiming to maximize profits. LO:TECH refuted this, insisting that its systems are fully automated.

However, market makers pausing trading has a significant impact. Messari Research Analyst Matthew Nay remarked that halting operations leads to “tremendously less liquidity in order books,” exacerbating price volatility.

Greg Magadini, director of derivatives at Amberdata, pointed out that this situation leads to price fragmentation across exchanges but defended market makers retreating.

He stated that traditional markets have clearinghouses to cover traders’ potential losses, while some crypto exchanges have insurance funds. Yet, during the recent turbulence, many exchanges, like Hyperliquid, relied on auto-deleveraging, closing winning positions once the opposite side lost all money.

Magadini elaborated, “Those gains might just counterbalance losses on other exchanges, complicating liquidity provision in a fragmented environment. If market makers can’t trust their hedges, they will have to withdraw.”

In conclusion, De Maere from Wintermute asserted that they aim to “make markets in a safe, delta neutral way,” but that was not achievable last Friday due to the flash crash’s severity.