#Liquidity101 – Quick Understanding of Liquidity in the Cryptocurrency Market

Liquidity is the ability to buy or sell an asset without causing a significant change in its price. In the crypto market, a coin/token is considered to have high liquidity if you can easily trade it with low slippage.

For example: Bitcoin and ETH have high liquidity because they have large trading volumes, with many buyers and sellers every second. In contrast, a lesser-known altcoin will have low liquidity, leading to its price being easily 'distorted' with just one large transaction.

Why is liquidity important?

💱 Easy trading, less slippage

📉 Reduces the risk of unusual volatility

🛡️ Protects investors when quick capital withdrawal is needed

In DeFi, liquidity also comes from liquidity pools – where users deposit tokens to support trading and receive rewards.

👉 In summary, liquidity is the backbone of every market – the higher it is, the fairer and more transparent the trading becomes.