Knowledge Hub
Liquidity Risk
You may not always be able to sell when you need to. Understand what affects liquidity and how to prepare.
Liquidity risk is the chance that you might not be able to buy or sell your cryptocurrency quickly at a fair price when you want to. In crypto markets, liquidity can be limited for several reasons, including a lack of buyers or sellers, high market volatility, technical issues on trading platforms, or temporary trading restrictions.
Unlike traditional financial markets, cryptocurrency liquidity can drop suddenly, especially during volatile or stressful market conditions. This can make it difficult to sell your assets promptly. In extreme cases, exchanges may pause trading altogether, restricting your access to funds. Additionally, system outages, sudden price crashes, or regulatory interventions can impact your ability to trade at the price you want.
Tokens that are less popular or have lower trading volumes typically carry higher liquidity risks. Large sales of these tokens can cause significant price swings. Since liquidity depends on market depth and trading volume, it’s important to carefully assess market conditions before making trades.
Things to keep in mind:
Selling or withdrawing crypto may not always happen instantly.
Liquidity can disappear during market downturns or periods of high stress.
Exchanges might temporarily halt trading during extreme volatility.
Demand for cryptocurrencies can shift quickly, affecting your ability to sell.
Only invest money you can afford to lose and avoid relying on crypto for immediate cash needs.