Definition ∞ A liquid supply crunch in the cryptocurrency market refers to a situation where the available supply of a particular digital asset for immediate trading or exchange significantly diminishes. This reduction in readily accessible tokens can result from various factors, including increased long-term holding by investors, substantial amounts locked in staking or DeFi protocols, or reduced selling pressure. Such a condition can lead to heightened price volatility and rapid price appreciation due to limited selling interest. It signifies a reduction in market liquidity for that asset.
Context ∞ Reports of a liquid supply crunch often appear in news analyses when discussing potential upward price movements for a cryptocurrency. This phenomenon is frequently observed for assets with strong staking incentives or growing decentralized finance ecosystems that absorb significant portions of the circulating supply. Understanding liquid supply dynamics is essential for assessing market sentiment and potential price action.
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