#Liquidity101 Liquidity as a term is defined as the ability to buy or sell assets in the market without causing radical changes in the price of the assets.

Liquidity can refer to two different areas; liquid markets and liquid assets.

A market is considered liquid if there are always investors ready to trade. An asset is liquid if it can be easily converted into cash.

But what does it mean when it comes to cryptocurrencies?

As with any investments, you want to quickly sell and buy tokens without requiring a price drop or a long wait for a deal to be agreed upon. For this to be possible, the market in which you are trading must be liquid. In other words, there should be high trading activity, and the supply and demand prices should not be too different.

Let's consider an example from the seller's perspective;

Bob has 5 tokens of a certain cryptocurrency, and the price of these tokens has increased over the past few days. Bob is happy about this and decides to quickly sell the tokens at the current market price.