Liquidity describes how easily an asset can be bought or sold without causing a large price move. A liquid market has enough buyers and sellers to absorb trades smoothly.
How It Works
In a liquid market, order books are deep and bid-ask spreads are narrow. Traders can enter or exit positions with less slippage.
In an illiquid market, even a moderate order can move the price sharply because there are not enough buyers or sellers at nearby price levels.
Why It Matters In Crypto
Liquidity matters because it affects trading costs, volatility, and market stability. Crypto markets can be fragmented across many exchanges and chains, which makes liquidity especially important.
A practical example: Bitcoin usually has deeper liquidity than a small altcoin, so large trades are less likely to move BTC’s price dramatically.
