What are the causes and drivers of digital currency illiquidity?

Digital currency liquidity basically means that an asset can be easily converted into cash without unduly affecting the price of that asset. And the two main components here are speed and price. In order for an asset to be liquid, traders need to be able to quickly convert their assets into cash without experiencing too much price slippage. Higher liquidity means your orders are easily filled, and technical analysis is a widely used technique in the crypto market that helps users identify patterns and trends more easily. Many investors may still not know what is the reason for the lack of liquidity of this digital currency? Let me introduce it to you below.

What is the reason for the lack of liquidity in digital currencies?

In the traditional financial market, because the market volume is large enough, the market order is sound enough, the number of investors is large, liquidity is not a problem, and the investment target itself has good value support. But in the currency circle, all this is a problem. There is no fundamental basis for currency prices, and there is no set of effective standards for measuring value. The lack of supervision, the small user base, etc. have led to poor liquidity of most project currencies and rising prices. All declines depend on the consensus of currency prices, and speculation is prevalent.

We have always emphasized that the liquidity advantages of digital currencies compared to traditional investment targets are mainly reflected in the convenience of point-to-point transactions, transfer payments, and buying and selling circulation. However, compared to the liquidity of transactions and intrinsic value support, there is actually a certain gap in the performance of digital currencies.

The poor liquidity of the digital currency market is also reflected in the imperfect infrastructure services. According to the news just now, due to the failure of Amazon cloud service, many exchanges experienced data anomalies. Some exchanges were forced to stop deposits and withdrawals, and some investors suffered heavy losses due to data anomalies. Such incidents happen from time to time. Issues such as the stability of the trading platform, fund security, and transaction security are all major issues that cannot be ignored. It is still recommended that everyone trade on the big platforms. At least if there is a problem, the exchange will provide solutions to solve it. Once an exchange suffers heavy losses, running away may be the only way out.

What drives digital currency liquidity?

As liquidity is important to the overall health of the market and for cryptocurrencies to fulfill their role as a medium of exchange and store of value. What do I have to do?

1. Building more fiat-to-crypto on and off the ramp

The process of converting funds to cryptocurrency and back is increasingly streamlined, making it easier for investors to participate in various transactions Place. This will ultimately improve market efficiency and consistency of prices across different markets.

Our solution is to conveniently buy and sell cryptocurrencies with cash through OTC platforms in partnership with payment providers.

2. Market Makers

·Every cryptocurrency exchange works with a market maker - parties agree to trade on your platform in exchange for reduced fees or even payment . They are tasked with creating order books and sometimes filling orders.

·Continuously work with market makers to drive more liquidity.

3. More funds

·The more investors enter the market and inject funds into the market, the more likely the asset/market is to be liquid.

·Focus on providing the right environment for institutional investors, knowing that these regulated investment communities are the key to increasing cryptocurrency market capitalization.

The above content is the editor’s detailed explanation of the reasons for the insufficient liquidity of digital currencies. When it comes to trading, the first thing everyone needs to consider is its liquidity. In fact, whether it is foreign exchange, commodities or now cryptocurrencies, this is an unavoidable factor for any trader. There are many factors that make liquidity important to the cryptocurrency trading market, and they also determine the price of many assets. If you want to start trading with cryptocurrencies, it is recommended to use some of the more powerful cryptocurrency exchanges. After all, the development of cryptocurrency exchanges is an area that is expanding and becoming more profitable.

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