#Liquidity101 Liquidity in financial markets, including crypto, refers to how easily an asset can be bought or sold without significantly affecting its price. Think of it as the "smoothness" of a market. High liquidity means there are plenty of buyers and sellers, making it easy to enter or exit positions quickly and at a fair price. This leads to narrow bid-ask spreads (the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept).

Conversely, low liquidity can lead to higher price volatility, wider spreads, and difficulty executing trades, especially large ones. In the crypto world, projects with low liquidity can be risky, as you might struggle to sell your holdings without incurring significant losses. For a healthy market, strong liquidity is paramount, ensuring efficient price discovery and stable trading conditions.