What Is Crypto Liquidity

Author: Iskander Ziyanurov

The crypto market is one of the most hectic financial markets where its development skyrockets every single day. Suppose you want to launch a cryptocurrency broker or expand the scope of services with digital currencies. In this case, you must learn more about crypto liquidity for setting up a successful platform. Let's explain this concept and how it impacts the digital currency market.

The Definition of the Cryptocurrency Liquidity

Crypto liquidity providers are an essential part of any operation with digital assets, and every brokerage would agree with this statement. No matter which instruments you offer to trade, be it coins, tokens, or CFDs, it is necessary to secure trustworthy liquidity for providing more effective trading activities.

Cryptocurrency liquidity allows investors to buy and sell assets according to the market price. As for digital currencies, liquidity shows how simply they can be exchanged into fiat money or another crypto.

When the liquidity is low, it leads to high market volatility and price gaps. Investors may face losses as the spread between Bid and Ask prices are high. In contrast, high liquidity means that the chosen market is stable and more resistant to price fluctuations.

Moreover, a highly liquid market allows traders to operate with crypto more easily as their orders will be executed immediately. The reason is simple: this kind of market holds a high number of buying and selling operations and allows traders to enter a position or exit at any time.

Why Is Liquidity Essential in Crypto

Paul Krugman, Nobel Laureate in Economics for 2008, said that market liquidity is as vital as oil for car motors.

Liquidity plays an essential role in the digital currency sphere. It also cuts investment risks and helps determine your exit strategy to liquidate your assets. This is why investors and speculators are always looking for liquid markets.

Let's check the most prominent benefits of high liquidity.

Less Sensitive to Market Manipulations

Digital currencies are still paving their way — they are less regulated, and the market is full of players who want to manipulate the whole sphere to make profits. Still, the top crypto coins (e.g., Bitcoin or Ethereum) are liquid enough to withstand serious manipulation; therefore, buyers and sellers can provide all transactions instantly. As a result, single market players (or groups of investors) have less leverage to change the market situation. Thus, it is very important to partner with a reliable liquidity provider.

Price Stability and Less Volatility

Experienced traders and investors state that a liquid market is more stable and less sensitive to price fluctuations. It means that an active market with high trading volume will create a balance between buyers and sellers. No matter the type of activities being executed, other players will act the way they want. This approach equilibrates price and reduces slippage when people enter and exit trading positions.

For example, if traders want to purchase a highly liquid asset like Bitcoin or Ethereum, it would be easier for them to find a seller. In this case, demand and supply will be balanced, and it means that crypto quotes will be stable and resistant to fluctuations caused by large transactions. However, on the other hand, whale traders can still make an illiquid market more volatile with significant transactions.

Simple Trader's Behaviour Analysis

The number of digital currency market players always defines market liquidity. If there are many participants, it will provide more information about the situation on the market. The deep order book with loads of Bid/Ask orders will create a small spread and minimize volatility. In the end, all players will get a clear picture of the last market cycle.

Therefore, sellers will sell their digital coins at competitive prices in a highly active market, so they do not fail. However, buyers may enter the market and offer higher pricing because they may be eager to trade on the crypto market, creating well-balanced conditions for everyone.

All the above factors help develop accurate charts to analyze the trader's behaviors and current trends. Moreover, they will be helpful to learn more about the market situation, make precise predictions and well-informed decisions.

Faster Trading Period

In addition to the first-class user experience and trading convenience, liquidity is vital for brokers who want to increase profits. Liquid markets hold a large number of traders and investors to execute trades faster and easier.

When market volatility is high, crypto holders can find a simple way to exit their positions and reduce losses. Conversely, illiquid asset holders will be unable to sell their coins until they find a motivated buyer, even if the market situation is against them.

In any case, a crypto liquidity provider will create a suitable environment for both brokers and market players.

Factors That Drive Crypto Liquidity Development

There are three crucial factors that impact the liquidity of any digital asset.

Trading Volume

If you visit the coin ranking website (e.g., CoinMarketCap), you will see the daily trading volume for each digital currency. This rate means the number of people operating with this asset and the sizes of their trading positions; this is why it is a core factor in defining the level of liquidity.

With the explosion of cryptocurrency exchange platforms in the last couple of years, millions of people can quickly enter the market and start trading. Therefore, the rise in trading volume, especially for top digital coins, plays an essential role in improving liquidity.

Market Adoption

This is another critical factor that impacts crypto liquidity. As more and more platforms accept digital assets for working with them, their level of liquidity grows. Thus, it is crucial that Bitcoin, Ethereum, Ripple, and other digital assets are adopted as means of payment by more companies around the globe.


Requirements of regulatory bodies vary from country to country, as every jurisdiction holds a unique view on digital currencies — from full adoption and an ambivalent attitude, to a complete ban.

No matter the legal situation, crypto coins are nearly ready to revolutionize the financial sphere, encouraging regulators to take a stand to protect customers and provide a reasonable tax policy. As more jurisdictions get on board, the result will be a broader acceptance of crypto, more considerable trading volumes, and a higher level of digital currency liquidity.


Liquidity is one of the most vital things for both traders and brokerage platforms. High liquidity makes crypto prices more stable and less volatile, affecting the ability to remain valuable over time. Even if extreme volatility occurs, these assets will remain reasonable for traders. A reliable liquidity aggregator helps maintain stable cryptocurrency quotes and executes orders immediately.