Definition ∞ Liquidity Exhaustion Signal indicates a point in the market where available sell-side liquidity has significantly diminished. This typically occurs after a prolonged period of selling pressure, suggesting that most willing sellers have already exited their positions. When liquidity is exhausted, even small buying pressure can result in substantial price increases. It often precedes a market rebound or a significant price floor.
Context ∞ The discussion surrounding Liquidity Exhaustion Signals often centers on their accuracy in identifying market bottoms in volatile digital asset markets. A key debate involves differentiating true liquidity exhaustion from temporary lulls in trading activity. Future developments will focus on integrating these signals with broader macroeconomic indicators and on-chain metrics to enhance their predictive power and reduce false positives.
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