Crypto Exchange Liquidity: Everything You Need to Know

Crypto Exchange LiquidityAny seasoned investor will keep a close eye on the liquidity of any asset when deciding to invest or not. That is one of the major points of importance. The same is true in crypto exchange as well.

Liquidity in crypto is important to investors since it tells them how viably they can exchange said asset. This article will give you a complete guide on crypto exchange liquidity and also why it matters.


What is Liquidity and Why is It Important

When it comes to trading any asset, liquidity is the most important aspect. As mentioned, liquidity essentially means how easily can you buy or sell an asset without affecting the price of the asset itself.

As you might imagine, this is pretty important for anyone investing in crypto. Since you want the asset to be easily sold or bought without seeing any negative impact on the price.

If you apply the concept to cryptocurrency, liquidity will mean how easily you can convert your cryptocurrency to cash or other coins. 

But is liquidity important then? In short, yes. Liquidity can have an impact on quite a lot of characteristics of any asset.


  • Liquidity ensures stability

Higher liquidity most definitely makes a market stable. Thus, it would be less prone to massive fluctuations and changes. Oftentimes, when the market is not liquid, single large transactions can have a significant impact on the market and price.

Large volume traders can sometimes influence the price of assets if there is little to no liquidity. At worst, they can manipulate the prices. A thing to note here is not all cryptocurrency shares the same amount of liquidity status. Bitcoin can be termed as one of the more liquid cryptocurrencies.


  • Investors and trader get fair prices

A liquid market will generally almost every time have a large number of participants. This inherently makes the prices fairer for everyone buying and selling the market.

This is also one of the reasons why liquidity is important. The prices can easily reach equilibrium since sellers will sell at a fair price and buyers will buy it to their capability.


  • Easy and quick transactions

Higher liquidity makes it faster to transact between parties. A large number of market participants makes it easier to find a seller or buyers and almost instantly make a transaction.

You can get your orders filled quicker. If you are selling, on the other hand, you can find worthy sellers easier. In general, you can seamlessly and quickly make transactions.


  • Technical analysis is increased

Cryptocurrency is a fast-moving market. Technical analysis can be done to make predictions on the future of the market. Liquidity helps with the accuracy of technical analysis.

Technical analysis is a widely used method of understanding the market. The more accurate the analysis, the more precise predictions you can make on the market and its future.

This will help investors and traders to make better decisions with the data they gather.


What Determines Liquidity?

There are a couple of factors that affect liquidity.


  • Overall Volume

Trade volume is a good way to judge the liquidity of the asset. It also impacts how liquid an asset like cryptocurrency is. The more trades occur, the easier you can exchange the assets for cash.

Most people who own crypto are investing and trading for price appreciation. They are not using it as much as a medium of exchange. Trade volume, however, means the number of exchanges that have happened. 

The trade volume can be a good determiner to see how liquid the asset is. Look at some of the largest exchanges like Binance, OKEx, or Bitfenix and see what their reported trades are.


  • Acceptance of Crypto

Liquidity in crypto is also influenced by how acceptable cryptocurrency is as a mode of payment. Acceptance is one of the major factors in the success of this asset. 

People who exchange or own cryptocurrency would want to be able to buy goods and services with cryptocurrency. Thus, to increase the realistic usability of the asset, merchants, shops, retailers, and businesses need to accept cryptocurrency as a legitimate way of payment.

The outlook for cryptocurrency acceptance is looking promising with many places starting to accept crypto as a form of payment. You will find that particular online shops are somewhat at the forefront of accepting crypto.

The more the acceptability of crypto increases, the liquid the asset will become over time.


  • Bid/Ask Spread

When someone is selling, they will have a minimum price they will sell crypto for. That is called the asking price. On the other hand, for buyers, the big price is the highest they will pay.

If the difference between the asking price and the bid price is less, the asset can be classified as more liquid. This is especially true since it is an indication that the buyers and sellers viewing current prices as fair.


  • Cryptocurrency Liquidity Status

As of now, crypto is not as liquid as compared to fiat money. This is because of a couple of reasons. Cryptocurrency is not very efficient just yet. There is also some hoarding of assets going on by top investors which contributes to the overall illiquidity of the asset.

Coupled that with some exchange failures, we cannot really say the liquidity in crypto is close to that of fiat currencies.

Having said that, some cryptocurrencies are more liquid than others. Bitcoin and Ethereum are prime examples. Bitcoin has an asset market cap and trade volume of over $19 billion. 

You can look into specific exchanges to determine if the current liquidity of crypto is suitable for you. HitBTC and Bitfenix are the top two exchanges.

CoinMarketCap is a great resource to gauge the liquidity of crypto. This will give you better information and understanding of the current liquidity status. As is the nature of crypto, it keeps fluctuating. So, you will need to keep updated with the current trends.



Liquidity in crypto fluctuates quite a lot. It is a good investment opportunity nonetheless if you know what you are doing. Hopefully, now you have a better understanding of crypto exchange liquidity. Happy trading.


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