I have some prior experience in writing automated trading systems which functioned on NASDAQ and futures exchanges, roughly 8-10 years ago.
One of the widely acknowledged problems with BTC seems to be its price instability and illiquidity, i.e. high volatility.
If BTC were a publicly traded equity, it would likely have 'market makers' which hold a certain reservoir of the stock, and make their offers
available all day long on the market, to buy at Bid and sell at Ask in order to 'make the spread', ie. profit just a few cents on each trade.
Market makers provide significant liquidity and stability to equity markets -- why don't I see anyone making a market for BTC, say on MTGox?
I have seen other exhanges which offer a premium for 'adding liquidity', i.e. keeping open orders on their books - but that's not the same.
In particular, there are algorithms which will calculate optimal spreads and automate the market-making function continuously.
Given the daily volume on MTGOX, I'd guess that a reservoir of only about 150 BTC would suffice to enable market-maker to operate.
So I'm looking for pointers from you experienced members to projects that are underway to add market-making to an exchange, or research,
or reasons why it cannot be done...
thanks for any advice