How to measure the liquidity of cryptocurrency markets?

A lack of liquidity can make it more challenging to enter or exit positions in a timely manner, which can lead to missed trading opportunities or increased risk in volatile markets. Therefore, assessing liquidity is a critical component of the due diligence process for any investor or trader looking to enter the cryptocurrency market. Liquidity providers help newly listed projects by providing robust liquidity that allows them to trade across top-tier crypto exchanges with low slippage. Complying with such standards attracts crypto investors, traders, and token issuers, and encourages them to deposit and trade on the exchange with their own funds.

how to find liquidity in crypto

This is when the exchange facilitates trades where tokens do not actually change in beneficial ownership, i.e. the exchange trading on its own platform, or incentivising others to do so. The tokens do not actually change hands and are simply passed through the exchange to boost volume numbers as a marketing ploy. This practice is so widespread among many exchanges – a report submitted to the SEC by Bitwise concluded that 95% of trading volumes on unregulated exchanges are fake. These large pools of funds supply DEXs with the necessary crypto liquidity to allow other users to swap tokens without relying on external firms or large investors.

What is Liquidity Analysis and What are the Available Charts

At the other end of the liquidity spectrum are non-fungible tokens which are only minted in scarce quantities, and sometimes even as unique items. For instance, the pool of potential buyers for record-breaking NFTs such as Beeple’s Everydays or Pak’s The Merge, both of which sold for tens of millions of dollars, is likely to be very small. Having liquidity is important for individuals and firms to pay off their short-term debts and obligations and avoid a liquidity crisis. In some sense, market liquidity can be compared to popularity, meaning each market and crypto exchange has its liquidity. Trading volumes for Bitcoin are now comfortably in the tens of billions on a daily basis and have grown substantially since 2014.

  • Trading volume.It is the amount of crypto trading in a given period, usually 24 hours.
  • 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“).
  • For instance, if the 24-hour volume of Bitcoin’s market is USD $300 million, it means that the total value of Bitcoin transacted within a span of 24-hours and across all exchanges amount to USD $300 million.
  • In terms of investments, equities as a class are among the most liquid assets.
  • There are a number of ratios that measure accounting liquidity, which differ in how strictly they define liquid assets.

Market makers hold massive positions in assets like stocks that they make available to traders. The price market makers are willing to buy assets for is known as the bid, whereas the price they’re ready to sell them for is the ask. To ensure a profit, market makers build in a slight price discrepancy between the bid-ask price (or the bid-ask spread).

Exchange Listings in Number

Our article will provide a full rundown of crypto liquidity providers and cover how to choose the best crypto liquidity provider to aid your technology and crypto business in growing. These market players are some kind of power brokers who help kickstart new crypto projects or exchanges. For big institutions and traders with a need to fill large orders, finding pockets of enough liquidity is absolutely essential. A market’s liquidity has a big impact on how volatile the market’s prices are. When these big players take positions in the market, they obviously aim to be filed at the best possible price. However, given the size of their positions, they need to find enough counter-forces to fill their orders, and here is the key, with the minimal amount of slippage.

how to find liquidity in crypto

The purpose of this website is solely to display information regarding the products and services available on the App. It is not intended to offer access to any of such products and services. You may obtain access to such products and services on the App. Limit orders, on the other hand, allow traders to specify a price at which they would like to transact, and do not execute until they get matched with someone else’s order. That is why Bitcoin is called digital gold, because it is impossible to determine the flow of income for gold, and its price is determined by the players’ mood. This precious metal experienced a sharp jump in value in 1980, tripling in price.

Factors Influencing Crypto Liquidity

Still, you can be sure that BitQuant Capital provides a wide range of market-making and liquidity-providing services at reasonable conditions. Moreover, we will always find solutions according to your requirements and budget for long-term success. An exchange is liquid when you can quickly buy and sell an asset without influencing the price. All financial products involve risk and you should ensure you understand the risks involved as certain financial products may not be suitable to everyone. Trading in margin foreign exchange and derivatives carries a high level of risk and you may incur a loss that is far greater than the amount you invested.

how to find liquidity in crypto

In the context of cryptocurrency liquidity it refers to the ease in which a coin can be converted into cash or other coins. Projects with high liquidity are more stable because plenty of buyers and sellers are trading crypto liquidity provider in the market. As such, the price of the asset will be less affected by a single trade. The term “liquidity” describes how simple it is for customers to exchange one cryptocurrency for another on an exchange.

What is liquidity in trading?

The “ease” factor is based on the time required to execute the transaction. Moreover, digital assets with high liquidity enable traders to make accurate estimates and take well-informed decisions. The success and availability of a cryptocurrency heavily rely on the acceptance of the masses or a large network of persons using it. Merchants and businesses must accept digital tokens as a payment mode to improve the usability and utility of cryptocurrencies as a practical transaction medium.

how to find liquidity in crypto

BitQuant Capital is a value-driven market maker and one of the top-ranked crypto trading companies working with the major crypto exchanges and well-known token projects. We offer world-class and best-suitable trading and exchange listing solutions for your crypto project while focusing on your critical demands. With the most robust scalable technology, we are more than ready to establish a fair and liquid environment for your crypto startup and accelerate its growth. Hardly any crypto project wants to place and sell its digital assets in an illiquid exchange, just as no typical exchange wants to list low-liquid assets. As liquidity of both exchanges and assets isn’t something that appears on its own, that is where liquidity providers can come to help. One of the key factors affecting liquidity in the cryptocurrency market is trading volumes.

What is Liquidity in Cryptocurrency?

Real estate is particularly illiquid as it typically takes a minimum of several months to receive cash. A cryptocurrency exchange is a marketplace where individuals purchase and sell cryptocurrencies. A large number of exchanges indicate significant market activity as individuals have multiple platforms to buy or sell digital assets.

Use cases outside the crypto industry

A market overview that provides the possibility to discover assets by trading volumes, price increase, and much more. On the flip side, relatively unknown crypto assets can experience a huge boost in twenty-four hour trading volume after a big event or promotion by a celebrity. Thus, looking at a crypto’s trading volume over a longer period or taking the average trading volume over a month presents a better representation of its liquidity. With the growth in popularity of cryptocurrency trading, the demand for liquidity has become very apparent and many brokers are now looking to take advantage of this new niche in the market. B2Broker has emerged as one of the leading providers of cryptocurrency liquidity in the industry enabling liquidity to many major, as well as smaller forex brokers and several exchanges. There’s enough Bitcoin liquidity for holders to liquify their holdings when needed.