Low Liquidity in Cryptocurrency
Low liquidity is an economic term used to describe assets that are difficult to buy or sell due to a lack of buyers or sellers. In the world of cryptocurrency, low liquidity can mean that coins and tokens have limited trading volume on exchanges and low market capitalization. Low liquidity often leads to high price volatility as small trades can cause large swings in the price of a coin or token.
In order for any asset – including crypto currencies – to be liquid, it must have constant demand from buyers and sellers who are willing to transact at relatively close prices. When this balance is disrupted, there’s not enough buying pressure pushing up the price nor enough selling pressure keeping it down; leading to wide gaps between bid and ask prices (a phenomenon known as slippage). This results in higher transaction costs than usual when buying or selling digital assets with low liquidity.
The main reason why some cryptocurrencies suffer from low liquidity is because they’re new, highly speculative investments without much history behind them yet — so only a few traders are interested in buying/selling them at any given time. Another common reason for poor liquidity is if there aren’t many reputable exchanges offering these coins/tokens—in which case investors may have difficulty finding someone else willing trade with them at all! Finally, certain projects simply don’t generate enough interest among investors which makes their associated tokens less attractive investments compared with others on offer.
Given all this information, it should be clear why having access to markets with good levels of liquidity is important: It allows you (as an investor) more freedom when entering & exiting positions while also reducing your transaction costs significantly over time thanks largely due less slippage occurring per trade execution!
