Liquidity

Cryptocurrency Liquidity is a crucial factor for the success of any transaction and the long-term viability of any cryptocurrency. Low liquidity levels cause market volatility, having a negative impact on trading volumes and value.

With the increasing hype around cryptocurrencies, we take a look at the current state of liquidity within the crypto ecosystem.

Cryptocurrency exchanges are experiencing record growth, as seen by the following statistics:

Over 2.2 billion USD was traded in January 2018 across all exchanges according to CoinMarketCap .  According to CMC, most of this volume was traded on an exchange known as 'BINANCE'. This was followed by US-based exchange 'GDAX' and then Korean exchange 'KRW'.

These numbers are expected to increase as new exchanges come online and other global markets become involved in cryptocurrency trading. For example, Japanese exchange, CoinCheck is currently experiencing 100m USD trading volumes per day.

With increasing levels of trading activity, it is clear that there is a growing demand for exchanges and liquidity services. However, most exchanges fail to provide high liquidity, due to limited trading volumes on their platform or market inefficiencies.

Cryptocurrency is an incredible asset class characterised by extreme volatility. While volatility can be both positive or negative for some investors, liquid coins are usually the ones that traders use for long-term value storage.

Once an investor has found a few coins that interest them, it's important to look at their liquidity levels. Liquidity refers to the ability of a coin to be easily converted into cash or other coins. In other words, it's the ease with which you can find someone willing to trade cash for your coins. An easy way to check a coin's liquidity is through its daily trading volume, which represents the amount of coins bought and sold over a 24-hour period.

The first and most important thing to realize is that liquidity matters. It may seem obvious in traditional markets, but in the crypto world it is not.

Liquidity makes it easy to enter or exit a position quickly with little slippage, which makes it easy to manage risk. If you are holding a large chunk of a token that drops in value quickly and you want to cut your losses, there will be very little market depth on your exchange and this might cause your entire position to liquidate at a bad price.

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