Liquidity Cycles

Definition ∞ A liquidity cycle refers to the recurring patterns of money availability within financial markets. These cycles influence asset prices and trading volumes, affecting the ease with which assets can be bought or sold. Understanding these fluctuations is vital for interpreting market dynamics and strategic asset allocation in digital economies.
Context ∞ Discussions surrounding liquidity cycles in the cryptocurrency sphere often center on the impact of macroeconomic factors, central bank policies, and investor sentiment on the availability of capital for digital asset investments. Analysts scrutinize on-chain data and off-chain indicators to predict shifts in liquidity, which can signal potential market expansions or contractions.