Liquidity In The Crypto Market #002

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Hello crypto friends,

How are you all doing today,

I trust you are all doing perfectly fine and are enjoying your activities in the community today.

It is with a happy heart that I humbly appear before you today to share another topic of great importance in the crypto ecosystem.

Today is another great day and we are going to examine another interesting topic in the cryptospace, we shall continue our discussion on liquidity, please tag along and enjoy with us.

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IMPORTANCE OF LIQUIDITY

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There are several Importance of liquidity in the crypto market and as we can recall, liquidity is the ease at which trades take place in the cryptomarket.

Please continue with me as we examine some key importance of liquidity in the cryptomarket.

• MARKET EFFICIENCY:

When a market has enough liquidity, it tends to improve it's efficiency, thus narrowing bid-ask spread.

For emphasis sake, bid-ask spread can be explained to be the difference bid and ask price in the cryptomarket.

The bid price is the price that seller is willing to sell a particular commodity in the cryptospace and the ask price is the maximum price that a buyer is willing to buy a commodity in the cryptomarket.

When a market is illiquid, that is, there are little participants in the market, there tend to be a higher bid-ask spread in the market.

And a higher bid-ask spread reduces the efficiency of transaction in the market.

Efficiency reduces in the sense that buyers will be forced to buy at a price higher than their intended price and sellers will be compelled to sell at a lower price.

When the market is liquid and there is a little/no bid-ask spread in the market, trades tend to be executed easily as there are so many buyers willing to buy at the desired price of the seller and there are sellers willing to sell at the price of the buyers.

And this helps to reduce trading costs for it's participants.

• ATTRACTS INSTITUTIONAL INVESTORS:

By investing in market with low liquidity, you stand the risk of loosing some part of your money which will be used as transaction cost and which is mostly as a result of low market participants.

And as a result of this, investment firms and the hedge funds stay away from illiquid market and rather search for market with a higher liquidity.

Let's put it that the higher liquidity a market has, the more investors it attracts to itself.

A liquid market attract high scale investors because it is only in a high liquid market can their demands be met.

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CONCLUSION

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A market without liquidity to me is as good as dead, I personally avoid market without liquidity.

A liquid market is very important as it is all we seek for and explained above are some of it's advantages.