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Liquidity in Cryptocurrencies

The ease with which a digital token can be converted into a digital asset or cash without affecting its price

Written byCFI Team

Reviewed byAndrés Loo

Reading time5 minutes

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What is liquidity in cryptocurrencies?



In any investment, one of the most important considerations is the ability to buy or sell that asset efficiently when the investor wishes. After all, what good is making a profit if the seller cannot realize it? The liquidity of the asset will largely determine whether a prudent investor will invest in it and to what extent, and this applies to Bitcoin and other cryptocurrencies.

Liquidity in cryptocurrencies refers to the ease with which a digital coin or token can be converted into another digital asset or cash without affecting its price and vice versa. Since liquidity measures the external supply and demand for an asset, a deep market with abundant liquidity indicates a healthy market. Furthermore, the more liquidity a cryptocurrency or digital asset has, all else being equal, the more stable and less volatile that asset will be.