What is Crypto Liquidity?
Cryptocurrency liquidity means how quickly you can convert a cryptocurrency asset into cash. For example, Bitcoin is the most liquid cryptocurrency since it can be easily converted into most fiat currencies like USD, GBP, and EUR. On the other hand, an NFT art may not have the same kind of liquidity. This is because art markets in general have less liquidity than currencies.
Crypto liquidity is fluctuating. Even the most liquid crypto assets can lose liquidity when demand plunges. In 2018, the Bitcoin crash made all cryptocurrency assets lose liquidity. Due to the volatile nature of crypto markets, liquidity can change quickly in real-time. For example, BTC trading at $50,000 can lose $2000 within seconds, making the asset less liquid.
Liquidity is a broad term in economics. It is also used to understand how smoothly transactions flow in markets and the economy. In Decentralized Finance (DeFi), cryptocurrency exchange services generate liquidity for swaps i.e, the ability to allow exchange between currency pairs like ETH-USDT, DAI-USDT, and so on.
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