Liquidity exhaustion describes a market state where the available assets for sale at current price levels diminish significantly, indicating a lack of willing sellers. This condition can lead to sharp price movements, particularly upward, as even small buy orders can disproportionately impact the asset’s value due to limited supply. It suggests that most market participants who intended to sell at those prices have already done so. This phenomenon often precedes increased volatility.
Context
The current discussion around liquidity exhaustion frequently analyzes order book depth and on-chain metrics to identify potential supply constraints. A key debate exists concerning whether such exhaustion represents a temporary market anomaly or a precursor to a more sustained price surge. Future developments will focus on automated market-making protocols and enhanced liquidity provision mechanisms to mitigate sudden price dislocations during periods of low market depth.
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